UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5188
---------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
CHARLES A. ETHERINGTON, 4500 MAIN STREET, KANSAS CITY, MISSOURI 64111
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 816-531-5575
----------------------------
Date of fiscal year end: 12-31
------------------------------------------------------
Date of reporting period: 06-30-2008
------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP BALANCED FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Market Returns. . . . . . . . . . . . . . . . . . . . . . . . . 2
VP BALANCED
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Stock Holdings . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Stock Industries. . . . . . . . . . . . . . . . . . . . . . 5
Key Fixed-Income Portfolio Statistics. . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 21
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 22
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 24
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 29
OTHER INFORMATION
Approval of Management Agreement for VP Balanced. . . . . . . . . . . 30
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 34
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 35
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By John Schniedwind, Chief Investment Officer, Quantitative Equity
ROUGH SAILING FOR STOCKS
U.S. stocks fell in the first half of 2008 as market conditions grew
increasingly volatile. In the first quarter of the year, losses from
turbulence in the mortgage and credit markets were more pervasive and
substantial than originally anticipated, while the economy teetered on the
brink of recession amid job losses and weaker consumer spending. As a result,
the major stock indexes suffered their worst quarterly decline since 2002.
The Federal Reserve (the Fed) attempted to provide some stability to the
economy and financial system by cutting short-term interest rates aggressively
and providing liquidity to the credit markets. The Fed's efforts restored some
measure of investor confidence, as did better news on the economy and
corporate profits, providing the catalyst for a market rebound in April and
May.
But the recovery was short-lived -- stocks finished the period on a down note
as June brought bleaker economic news and another bout of financial-sector
losses, reigniting the market's economic and credit fears. In addition,
inflation became a greater concern as energy, food, and commodity prices
surged.
BONDS ADVANCED MODESTLY
The U.S. bond market also faced increasing volatility but generally produced
modest gains for the six-month period. The worsening credit crunch and
recession fears stoked demand for the relative safety of high-quality bonds.
The Fed's four interest rate cuts during the period, which lowered the federal
funds rate to a 3 1/2-year low of 2%, also provided support for bonds.
However, higher inflation weighed on bonds late in the period. The inflation
rate for the 12 months ended June 30, 2008, stood at 5% -- its highest level
since 1991. Consequently, bonds gave back some of their gains in the last half
of the six-month period as investors demanded higher yields to compensate for
rising consumer prices.
Among the bond market's biggest sectors, Treasury and high-quality mortgage-
backed securities generated the best returns, benefiting from the flight to
quality. The credit market turmoil weighed on investment-grade corporate
bonds, which declined modestly.
U.S. Market Returns
For the six months ended June 30, 2008*
STOCK INDICES
Russell 1000 Index (large-cap) -11.20%
Russell Midcap Index -7.57%
Russell 2000 Index (small-cap) -9.37%
CITIGROUP U.S. BOND MARKET INDICES
Broad Investment-Grade (multi-sector) 1.41%
Treasury 2.23%
Mortgage (mortgage-backed) 1.86%
Agency 1.58%
Credit (investment-grade corporate) -0.25%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Balanced
Total Returns as of June 30, 2008
Average Annual Returns
5 10 Since Inception
6 months(1) 1 year years years Inception Date
CLASS I -4.94% -4.29% 6.52% 3.59% 7.15% 5/1/91
BLENDED INDEX(2) -6.59% -5.01% 6.29% 4.35% 8.76%(3) --
S&P 500 INDEX(4) -11.91% -13.12% 7.58% 2.88% 9.59%(3) --
CITIGROUP
US BROAD
INVESTMENT-GRADE
BOND INDEX 1.41% 7.77% 4.02% 5.76% 6.90%(3) --
(1) Total returns for periods less than one year are not annualized.
(2) See Index Definitions page.
(3) Since 4/30/91, the date nearest Class I's inception for which data are
available.
(4) Data provided by Lipper Inc. - A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. As
interest rates rise, bond values will decline.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the indices are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the indices do not.
- ------
3
VP Balanced
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1998
One-Year Returns Over 10 Years
Periods ended June 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Class I 5.39% 7.00% -5.41% -7.95% 5.71% 11.98% 8.43% 4.67% 12.75% -4.29%
Blended index 15.19% 6.41% -4.77% -7.81% 4.89% 11.38% 6.70% 4.83% 14.65% -5.01%
S&P 500 Index 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59% -13.12%
Citigroup US
Broad
Investment-Grade
Bond Index 3.12% 4.51% 11.26% 8.49% 10.53% 0.37% 7.00% -0.81% 6.08% 7.77%
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. As
interest rates rise, bond values will decline.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the indices are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the indices do not.
- ------
4
PORTFOLIO COMMENTARY
VP Balanced
Equity Portfolio Managers: Bill Martin and Tom Vaiana
Fixed-Income Portfolio Managers: Dave MacEwen, Bob Gahagan, Jeff Houston,
Hando Aguilar, Brian Howell, John Walsh, Dan Shiffman, Jim Platz, and Seth
Plunkett
PERFORMANCE SUMMARY
Balanced returned -4.94%* in the first half of 2008, compared with the -6.59%
return of its benchmark (a blended index consisting of 60% S&P 500 Index and
40% Citigroup US Broad Investment-Grade [BIG] Bond Index).
The negative returns for both the fund and its performance benchmark reflected
a sharp decline in stocks and modest gains for bonds. However, the fund held
up better as both the equity and fixed-income portions of the portfolio
outperformed their respective components in the benchmark. (It's worth noting
that the fund's results reflected operating expenses, while the benchmark's
return did not.)
STOCK COMPONENT OUTPERFORMED
VP Balanced's stock portfolio declined for the six-month period but outpaced
the S&P 500 thanks to favorable stock selection in seven of ten market sectors.
The bulk of the outperformance came from the portfolio's financials and
materials stocks. The key to outperformance in the financials sector was
avoiding the worst performers, particularly among commercial banks and
insurance firms. The most notable of these was insurer American International
Group, which fell sharply during the period as the company faced an SEC
investigation, reported the largest quarterly loss in its history, and
dismissed its CEO. Commercial bank Wachovia was another noteworthy decliner
that the portfolio successfully avoided.
In the materials sector, chemicals stocks were responsible for virtually all
of the outperformance, led by agricultural chemicals maker Mosaic. Mosaic,
which produces fertilizer and its raw materials, benefited from strong demand
for agricultural products and rising commodity prices.
Holdings in the energy and utilities sectors detracted from relative
performance. The underperformance in the energy sector stemmed from
underweight positions in energy production companies that focus on natural
gas, while stock selection
VP Balanced's Top Ten Stock Holdings as of June 30, 2008
% of equity % of S&P
portfolio 500 Index
Exxon Mobil Corp. 5.5% 4.2%
Johnson & Johnson 2.7% 1.6%
International Business Machines Corp. 2.7% 1.5%
ConocoPhillips 2.7% 1.3%
Hewlett-Packard Co. 2.1% 1.0%
McDonald's Corp. 1.8% 0.6%
AT&T Inc. 1.7% 1.8%
Chevron Corp. 1.7% 1.8%
Anheuser-Busch Companies, Inc. 1.7% 0.4%
Amgen Inc. 1.6% 0.5%
VP Balanced's Top Five Stock Industries as of June 30, 2008
% of equity % of S&P
portfolio 500 Index
Oil, Gas & Consumable Fuels 14.6% 12.6%
IT Services 6.8% 2.4%
Pharmaceuticals 5.0% 6.1%
Computers & Peripherals 4.4% 3.2%
Capital Markets 3.7% 2.8%
*Total returns for periods less than one year are not annualized.
- ------
5
VP Balanced
among independent power producers weighed on results in the utilities sector.
The portfolio's biggest individual detractor was health care services provider
Humana, which lowered its earnings forecast for 2008, citing
higher-than-expected costs in its Medicare prescription drug program.
FIXED INCOME BOOSTED RESULTS
The portfolio's bond component enjoyed positive performance for the six-month
period, outperforming the Citigroup BIG Index. Several factors contributed to
the bond component's outperformance of its benchmark. An overweight position
in Treasury bonds and an underweight position in corporate bonds added value
as Treasury securities outperformed corporate bonds during the period.
Security selection within the portfolio's corporate bond holdings -- in
particular, avoiding the struggling financials sector -- also contributed
favorably to results.
Diversification also helped, particularly the portfolio's modest positions in
municipal bonds and Treasury inflation-protected securities (TIPS). After a
huge sell-off in the municipal bond market in February, we initiated a small
position in municipal bonds, taking advantage of their relatively high yields.
TIPS were the best performers in the bond market, benefiting from persistently
high energy and commodity prices.
The bond portion was also positioned to benefit from a steeper yield curve --
that is, a widening gap between short- and long-term interest rates. Our
strategy paid off as this gap expanded during the six-month period.
We recently pared back our overweight position in Treasury bonds after their
strong performance over the past 12 months. Instead, we have looked for
bargains among downtrodden segments of the market, adding selectively to our
holdings of corporate and mortgage-backed securities.
OUTLOOK
The stock and bond markets are likely to face more volatility in the coming
months. A meaningful recovery for the economy remains elusive amid further
deterioration in the housing and mortgage markets, a rising unemployment rate,
and the highest inflation rate in 17 years. In addition, it is not clear
whether we've seen the worst of the financial sector losses or an upper
boundary on commodity prices, both of which represent further challenges for
the economy, the credit markets, and the Federal Reserve. Our focus will
remain on our disciplined investment approach, which will allow us to take
advantage of investment opportunities that may arise in this uncertain market
environment.
Key Fixed-Income Portfolio Statistics
As of As of
6/30/08 12/31/07
Weighted Average Maturity 5.1 years 5.0 years
Average Duration (modified) 5.8 years 5.1 years
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Domestic Common Stocks 51.6% 53.4%
Foreign Common Stocks(1) 3.9% 5.7%
U.S. Government Agency
Mortgage-Backed Securities 15.4% 14.1%
Corporate Bonds 10.4% 7.6%
Asset-Backed Securities and Collateralized
Mortgage Obligations 10.1% 12.0%
U.S. Treasury Securities 7.6% 8.3%
Other Securities 2.4% 0.3%
Cash and Equivalents(2) (1.4)% (1.4)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
Actual $1,000 $950.60 $4.36 0.90%
Hypothetical $1,000 $1,020.39 $4.52 0.90%
*Expenses are equal to the fund's annualized expense ratio listed in the table
above, multiplied by the average account value over the period, multiplied by
182, the number of days in the most recent fiscal half-year, divided by 366,
to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Balanced
JUNE 30, 2008 (UNAUDITED)
Shares/Principal Amount Value
Common Stocks -- 55.5%
AEROSPACE & DEFENSE -- 1.6%
18,249 Boeing Co. $ 1,199,175
2,774 General Dynamics Corp. 233,571
952 Goodrich Corporation 45,182
737 L-3 Communications Holdings, Inc. 66,971
7,654 Lockheed Martin Corp. 755,144
2,756 Raytheon Co. 155,108
-------------
2,455,151
-------------
AIR FREIGHT & LOGISTICS -- 0.5%
1,332 C.H. Robinson Worldwide Inc. 73,047
2,159 FedEx Corp. 170,108
8,448 United Parcel Service, Inc. Cl B 519,298
-------------
762,453
-------------
AIRLINES(1)
5,857 Southwest Airlines Co. 76,375
-------------
AUTO COMPONENTS -- 0.2%
4,027 Johnson Controls, Inc. 115,494
7,605 Lear Corp.(2) 107,839
5,843 TRW Automotive Holdings Corp.(2) 107,920
-------------
331,253
-------------
AUTOMOBILES(1)
11,151 Ford Motor Co.(2)(3) 53,636
-------------
BEVERAGES -- 1.6%
23,312 Anheuser-Busch Companies, Inc. 1,448,142
8,172 Coca-Cola Co. (The) 424,781
9,949 PepsiCo, Inc. 632,657
-------------
2,505,580
-------------
BIOTECHNOLOGY -- 1.2%
29,116 Amgen Inc.(2) 1,373,111
7,587 Cephalon, Inc.(2)(3) 505,977
1,139 Gilead Sciences, Inc.(2) 60,310
-------------
1,939,398
-------------
CAPITAL MARKETS -- 2.1%
6,638 Charles Schwab Corp. (The) 136,345
8,425 Federated Investors Inc. Cl B 289,989
2,307 Goldman Sachs Group, Inc. (The) 403,494
834 Janus Capital Group Inc. 22,076
17,984 Knight Capital Group, Inc. Cl A(2) 323,352
9,057 Morgan Stanley 326,686
6,294 Northern Trust Corp. 431,580
Shares/Principal Amount Value
10,958 Raymond James Financial, Inc.(3) $ 289,182
15,502 State Street Corp. 991,972
-------------
3,214,676
-------------
CHEMICALS -- 1.0%
176 Ashland Inc. 8,483
1,558 Celanese Corp., Series A 71,138
1,664 CF Industries Holdings, Inc. 254,259
4,407 Monsanto Co. 557,222
2,167 Mosaic Co. (The)(2) 313,565
88 Potash Corp. of Saskatchewan 20,114
447 Sigma-Aldrich Corp. 24,075
6,212 Terra Industries Inc. 306,562
-------------
1,555,418
-------------
COMMERCIAL BANKS -- 0.9%
13,507 Royal Bank of Canada 603,358
34,021 Wells Fargo & Co. 807,998
-------------
1,411,356
-------------
COMMERCIAL SERVICES & SUPPLIES -- 0.1%
2,177 Allied Waste Industries Inc.(2) 27,474
3,543 R.R. Donnelley & Sons Co. 105,191
827 Watson Wyatt Worldwide, Inc. Cl A 43,740
-------------
176,405
-------------
COMMUNICATIONS EQUIPMENT -- 0.3%
11,736 Cisco Systems Inc.(2) 272,980
8,246 Corning Inc. 190,070
819 QUALCOMM Inc. 36,339
-------------
499,389
-------------
COMPUTERS & PERIPHERALS -- 2.4%
7,031 Apple Inc.(2) 1,177,271
14,981 EMC Corp.(2) 220,071
41,149 Hewlett-Packard Co. 1,819,196
7,184 Sun Microsystems, Inc.(2) 78,162
13,724 Western Digital Corp.(2) 473,890
-------------
3,768,590
-------------
CONSTRUCTION & ENGINEERING -- 0.6%
5,436 Chicago Bridge & Iron Company New York Shares 216,462
1,532 EMCOR Group Inc.(2) 43,708
3,486 Fluor Corp. 648,674
-------------
908,844
-------------
CONSUMER FINANCE -- 0.6%
6,111 American Express Co. 230,201
8,564 Capital One Financial Corp. 325,518
30,926 Discover Financial Services 407,295
-------------
963,014
-------------
- ------
8
VP Balanced
Shares/Principal Amount Value
CONTAINERS & PACKAGING -- 0.2%
2,786 Owens-Illinois Inc.(2) $ 116,148
6,923 Rock-Tenn Co. Cl A(3) 207,621
1,107 Sonoco Products Co. 34,262
-------------
358,031
-------------
DIVERSIFIED FINANCIAL SERVICES -- 1.0%
24,612 Bank of America Corp. 587,488
26,753 JPMorgan Chase & Co. 917,896
-------------
1,505,384
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4%
43,836 AT&T Inc. 1,476,836
829 CenturyTel Inc. 29,504
1,098 Embarq Corp. 51,902
15,970 Verizon Communications Inc. 565,338
3,245 Windstream Corp. 40,043
-------------
2,163,623
-------------
ELECTRIC UTILITIES -- 1.3%
9,791 Duke Energy Corp. 170,168
2,316 Edison International 118,996
10,034 Entergy Corp. 1,208,897
1,166 Exelon Corp. 104,893
5,156 FPL Group, Inc. 338,130
1,866 PPL Corp. 97,536
-------------
2,038,620
-------------
ELECTRICAL EQUIPMENT -- 0.2%
5,755 Emerson Electric Co. 284,585
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.0%
46,929 Celestica Inc.(2) 395,611
32,924 Tyco Electronics Ltd. 1,179,338
-------------
1,574,949
-------------
ENERGY EQUIPMENT & SERVICES -- 2.0%
8,105 ENSCO International Inc. 654,397
7,030 FMC Technologies Inc.(2) 540,818
9,984 Halliburton Co. 529,851
7,217 National Oilwell Varco, Inc.(2) 640,292
1,803 Noble Corp. 117,123
5,532 Schlumberger Ltd. 594,303
1,291 Smith International, Inc. 107,334
110 Unit Corp.(2) 9,127
-------------
3,193,245
-------------
FOOD & STAPLES RETAILING -- 1.3%
3,052 Costco Wholesale Corp. 214,067
9,584 Safeway Inc. 273,623
14,225 SYSCO Corp. 391,330
20,780 Wal-Mart Stores, Inc. 1,167,836
-------------
2,046,856
-------------
Shares/Principal Amount Value
FOOD PRODUCTS -- 0.7%
7,247 Flowers Foods Inc. $ 205,380
10,013 General Mills, Inc. 608,490
4,656 H.J. Heinz Co. 222,790
-------------
1,036,660
-------------
GAS UTILITIES -- 0.1%
2,799 Nicor Inc.(3) 119,209
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.9%
18,344 Baxter International Inc. 1,172,915
3,436 Becton, Dickinson & Co. 279,347
-------------
1,452,262
-------------
HEALTH CARE PROVIDERS & SERVICES -- 0.3%
2,226 Express Scripts, Inc.(2) 139,615
8,311 Owens & Minor Inc. 379,729
-------------
519,344
-------------
HEALTH CARE TECHNOLOGY(1)
2,556 IMS Health Inc. 59,555
-------------
HOTELS, RESTAURANTS & LEISURE -- 1.6%
2,388 Choice Hotels International Inc. 63,282
27,307 McDonald's Corp. 1,535,199
10,160 Starwood Hotels & Resorts Worldwide, Inc. 407,111
13,184 Yum! Brands, Inc. 462,627
-------------
2,468,219
-------------
HOUSEHOLD DURABLES -- 0.5%
1,523 NVR, Inc.(2)(3) 761,622
223 Snap-on Inc. 11,598
1,026 Tupperware Brands Corp. 35,110
-------------
808,330
-------------
HOUSEHOLD PRODUCTS -- 0.9%
4,176 Colgate-Palmolive Co. 288,562
18,779 Procter & Gamble Co. (The) 1,141,951
-------------
1,430,513
-------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.6%
43,471 Reliant Energy, Inc.(2) 924,628
-------------
INDUSTRIAL CONGLOMERATES -- 0.8%
46,149 General Electric Co. 1,231,717
-------------
INSURANCE -- 1.9%
9,486 Ace, Ltd. 522,584
5,928 American Financial Group, Inc. 158,574
10,268 Arch Capital Group Ltd.(2)(3) 680,973
8,319 Aspen Insurance Holdings Ltd. 196,911
441 Assurant, Inc. 29,088
8,476 Axis Capital Holdings Ltd. 252,670
9,921 MetLife, Inc. 523,531
- ------
9
VP Balanced
Shares/Principal Amount Value
6,387 Platinum Underwriters Holdings, Ltd. $ 208,280
5,433 Travelers Companies, Inc. (The) 235,792
6,544 Unum Group 133,825
-------------
2,942,228
-------------
INTERNET & CATALOG RETAIL(1)
733 Amazon.com, Inc.(2) 53,751
-------------
INTERNET SOFTWARE & SERVICES -- 0.5%
1,525 Google Inc. Cl A(2) 802,791
-------------
IT SERVICES -- 3.8%
28,377 Accenture Ltd. Cl A 1,155,511
19,841 International Business Machines Corp. 2,351,753
1,578 MasterCard Inc. Cl A 418,991
6,358 Metavante Technologies Inc.(2) 143,818
8,541 Visa Inc. Cl A(2) 694,469
45,916 Western Union Co. (The) 1,135,044
-------------
5,899,586
-------------
LEISURE EQUIPMENT & PRODUCTS -- 0.2%
3,219 Hasbro, Inc. 114,983
3,581 Polaris Industries Inc.(3) 144,600
-------------
259,583
-------------
LIFE SCIENCES TOOLS & SERVICES -- 0.2%
3,206 Invitrogen Corp.(2) 125,868
2,779 Thermo Fisher Scientific Inc.(2) 154,873
-------------
280,741
-------------
MACHINERY -- 1.0%
13,675 Caterpillar Inc. 1,009,489
1,203 Dover Corp. 58,189
1,330 Flowserve Corp. 181,811
4,441 Parker-Hannifin Corp. 316,732
-------------
1,566,221
-------------
MEDIA -- 1.2%
28,955 Comcast Corp. Cl A 549,276
5,050 DIRECTV Group, Inc. (The)(2) 130,846
18,042 DISH Network Corp. Cl A(2) 528,270
1,690 Omnicom Group Inc. 75,847
3,592 Viacom Inc. Cl B(2) 109,700
13,712 Walt Disney Co. (The) 427,814
-------------
1,821,753
-------------
METALS & MINING -- 0.7%
8,644 Freeport-McMoRan Copper & Gold, Inc. 1,012,990
-------------
MULTI-UTILITIES -- 0.1%
513 DTE Energy Company 21,772
Shares/Principal Amount Value
3,062 Public Service Enterprise Group Inc. $ 140,637
-------------
162,409
-------------
MULTILINE RETAIL -- 0.5%
23,708 Big Lots, Inc.(2) 740,638
-------------
OFFICE ELECTRONICS -- 0.1%
14,268 Xerox Corp. 193,474
-------------
OIL, GAS & CONSUMABLE FUELS -- 8.1%
2,378 Apache Corp. 330,542
14,896 Chevron Corp. 1,476,640
24,478 ConocoPhillips 2,310,478
3,079 Devon Energy Corp. 369,973
53,788 Exxon Mobil Corp. 4,740,337
2,057 Hess Corp. 259,573
1,376 Holly Corp. 50,802
540 Massey Energy Co. 50,625
6,578 McMoRan Exploration Co.(2)(3) 181,027
1,061 Noble Energy Inc. 106,694
9,708 Occidental Petroleum Corp. 872,361
8,506 Spectra Energy Corp. 244,462
9,809 Stone Energy Corp.(2)(3) 646,511
10,148 Sunoco, Inc. 412,922
7,949 W&T Offshore Inc. 465,096
3,734 Williams Companies, Inc. (The) 150,518
-------------
12,668,561
-------------
PHARMACEUTICALS -- 2.8%
17,370 Eli Lilly & Co. 801,799
36,913 Johnson & Johnson 2,374,983
5,010 Merck & Co., Inc. 188,827
37,860 Pfizer Inc. 661,414
14,709 Schering-Plough Corp. 289,620
-------------
4,316,643
-------------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1%
1,622 Equity Residential 62,074
3,332 Host Hotels & Resorts Inc. 45,482
845 Public Storage Inc. 68,267
-------------
175,823
-------------
ROAD & RAIL -- 0.6%
2,489 Burlington Northern Santa Fe Corp. 248,626
3,405 CSX Corp. 213,868
2,942 Norfolk Southern Corp. 184,375
301 Ryder System, Inc. 20,733
4,162 Union Pacific Corp. 314,231
-------------
981,833
-------------
- ------
10
VP Balanced
Shares/Principal Amount Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.0%
53,507 Amkor Technology Inc.(2) $ 557,008
18,710 Intel Corp. 401,891
42,754 LSI Corp.(2) 262,510
38,829 National Semiconductor Corp. 797,548
38,273 Texas Instruments Inc. 1,077,767
-------------
3,096,724
-------------
SOFTWARE -- 1.5%
9,502 Adobe Systems Inc.(2) 374,284
1,017 BMC Software Inc.(2) 36,612
2,182 CA, Inc. 50,382
29,460 Microsoft Corp. 810,445
51,483 Symantec Corp.(2) 996,196
-------------
2,267,919
-------------
SPECIALTY RETAIL -- 1.6%
9,221 AutoZone, Inc.(2) 1,115,834
10,077 Best Buy Co., Inc. 399,049
39,700 Gap, Inc. (The) 661,799
25,660 RadioShack Corp. 314,848
-------------
2,491,530
-------------
THRIFTS & MORTGAGE FINANCE -- 0.1%
23,673 Countrywide Financial Corp.(3) 100,610
2,039 Fannie Mae 39,781
-------------
140,391
-------------
TOBACCO -- 0.5%
23,068 Altria Group Inc. 474,278
6,192 Philip Morris International Inc. 305,823
-------------
780,101
-------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
2,980 American Tower Corp. Cl A(2) 125,905
-------------
TOTAL COMMON STOCKS
(Cost $80,594,363) 86,618,863
-------------
U.S. Government Agency Mortgage-Backed Securities(4) -- 13.6%
$ 55,064 FHLMC, 7.00%, 11/1/13 57,683
101,103 FHLMC, 6.50%, 6/1/16 105,929
82,682 FHLMC, 6.50%, 6/1/16 86,123
738,932 FHLMC, 4.50%, 1/1/19 722,630
25,268 FHLMC, 6.50%, 1/1/28 26,330
17,575 FHLMC, 6.50%, 6/1/29 18,314
20,411 FHLMC, 8.00%, 7/1/30 22,116
679,693 FHLMC, 5.50%, 12/1/33 673,534
83,273 FHLMC, 6.50%, 7/1/47 85,290
4,518,873 FNMA, 6.00%, settlement date 7/14/08(5) 4,559,118
Shares/Principal Amount Value
$1,518,000 FNMA, 6.50%, settlement date 7/14/08(5) $ 1,562,828
18,370 FNMA, 5.50%, 12/1/08 18,386
6,107 FNMA, 6.50%, 11/1/11 6,359
12,915 FNMA, 6.00%, 4/1/13 13,298
6,175 FNMA, 6.00%, 4/1/13 6,358
2,363 FNMA, 6.00%, 5/1/13 2,433
3,646 FNMA, 6.50%, 6/1/13 3,800
25,679 FNMA, 6.50%, 6/1/13 26,764
6,712 FNMA, 6.00%, 7/1/13 6,911
81,944 FNMA, 6.00%, 1/1/14 84,374
391,239 FNMA, 4.50%, 5/1/19 381,751
376,127 FNMA, 4.50%, 5/1/19 367,006
7,003 FNMA, 6.50%, 1/1/28 7,288
25,279 FNMA, 7.00%, 1/1/28 26,847
50,472 FNMA, 6.50%, 1/1/29 52,529
61,614 FNMA, 7.50%, 7/1/29 66,520
19,454 FNMA, 7.50%, 9/1/30 20,971
64,318 FNMA, 6.50%, 1/1/32 66,819
497,384 FNMA, 5.50%, 6/1/33 493,255
830,320 FNMA, 5.50%, 7/1/33 823,427
398,712 FNMA, 5.50%, 8/1/33 395,402
1,708,144 FNMA, 5.00%, 11/1/33(6) 1,648,125
1,735,788 FNMA, 5.50%, 1/1/34(6) 1,722,557
1,386,648 FNMA, 5.00%, 8/1/35(6) 1,334,026
1,332,432 FNMA, 4.50%, 9/1/35(6) 1,236,923
1,733,557 FNMA, 5.00%, 2/1/36(6) 1,667,770
1,046,013 FNMA, 6.50%, 8/1/37(6) 1,070,508
40,519 FNMA, 6.50%, 6/1/47 41,500
139,765 FNMA, 6.50%, 8/1/47 143,149
98,131 FNMA, 6.50%, 8/1/47 100,508
132,962 FNMA, 6.50%, 9/1/47 136,182
234,038 FNMA, 6.50%, 9/1/47 239,706
114,924 FNMA, 6.50%, 9/1/47 117,708
16,866 FNMA, 6.50%, 9/1/47 17,274
161,927 FNMA, 6.50%, 9/1/47 165,849
54,655 GNMA, 7.00%, 4/20/26 58,242
31,587 GNMA, 7.50%, 8/15/26 34,037
11,483 GNMA, 7.00%, 2/15/28 12,248
19,992 GNMA, 7.50%, 2/15/28 21,529
3,330 GNMA, 6.50%, 5/15/28 3,462
4,122 GNMA, 6.50%, 5/15/28 4,286
15,882 GNMA, 7.00%, 12/15/28 16,940
5,933 GNMA, 8.00%, 12/15/29 6,500
107,111 GNMA, 7.00%, 5/15/31 114,152
500,997 GNMA, 5.50%, 11/15/32 500,904
-------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Cost $21,303,839) 21,204,478
-------------
- ------
11
VP Balanced
Shares/Principal Amount Value
Corporate Bonds -- 10.4%
AEROSPACE & DEFENSE -- 0.3%
$ 57,000 Honeywell International Inc., 5.30%, 3/15/17(6) $56,819
70,000 Honeywell International Inc., 5.30%, 3/1/18(6) 69,188
112,000 Lockheed Martin Corp., 6.15%, 9/1/36(6) 111,321
155,000 United Technologies Corp., 4.375%, 5/1/10(6) 158,251
134,000 United Technologies Corp., 6.05%, 6/1/36(6) 133,379
-------------
528,958
-------------
AUTOMOBILES -- 0.1%
70,000 DaimlerChrysler N.A. Holding Corp., 5.875%,
3/15/11 70,962
100,000 DaimlerChrysler N.A. Holding Corp., 6.50%,
11/15/13 103,879
-------------
174,841
-------------
BEVERAGES -- 0.4%
170,000 Coca-Cola Co. (The), 5.35%, 11/15/17(6) 171,923
130,000 Diageo Capital plc, 5.75%, 10/23/17(6) 128,720
124,000 Miller Brewing Co., 4.25%, 8/15/08 (Acquired
1/6/04, Cost $126,011)(6)(7) 124,173
190,000 SABMiller plc, 6.20%, 7/1/11 (Acquired 6/27/06,
Cost $189,865)(6)(7) 195,071
-------------
619,887
-------------
CAPITAL MARKETS -- 0.4%
160,000 Credit Suisse, 5.00%, 5/15/13(6) 155,939
180,000 Merrill Lynch & Co., Inc., 4.79%, 8/4/10(6) 175,119
160,000 Merrill Lynch & Co., Inc., 6.875%, 4/25/18(6) 152,754
100,000 Morgan Stanley, 6.625%, 4/1/18(6) 95,052
-------------
578,864
-------------
CHEMICALS -- 0.1%
100,000 Air Products and Chemicals, Inc., 4.15%, 2/1/13 97,936
70,000 Rohm and Haas Co., 5.60%, 3/15/13 70,237
-------------
168,173
-------------
COMMERCIAL BANKS -- 0.6%
90,000 Fifth Third Bancorp, 6.25%, 5/1/13(6) 82,495
80,000 KeyCorp, 6.50%, 5/14/13(6) 71,529
Shares/Principal Amount Value
$ 130,000 PNC Bank N.A., 4.875%, 9/21/17(6) $ 114,462
80,000 PNC Bank N.A., 6.00%, 12/7/17(6) 75,970
97,000 PNC Funding Corp., 5.125%, 12/14/10(6) 96,469
110,000 Wachovia Bank N.A., 4.80%, 11/1/14(6) 99,869
172,000 Wachovia Bank N.A., 4.875%, 2/1/15(6) 156,576
152,000 Wells Fargo & Co., 4.625%, 8/9/10(6) 153,640
100,000 Wells Fargo & Co., 4.375%, 1/31/13(6) 96,969
-------------
947,979
-------------
COMMERCIAL SERVICES & SUPPLIES(1)
70,000 Pitney Bowes, Inc., 5.75%, 9/15/17 69,820
-------------
COMPUTERS & PERIPHERALS -- 0.1%
170,000 Hewlett-Packard Co., 4.50%, 3/1/13 168,617
-------------
CONSUMER FINANCE(1)
70,000 American Express Centurion Bank, 4.375%, 7/30/09 69,731
-------------
DIVERSIFIED FINANCIAL SERVICES -- 1.0%
240,000 Bank of America Corp., 4.375%, 12/1/10(6) 239,373
150,000 Bank of America Corp., 4.90%, 5/1/13(6) 144,973
150,000 Bank of America Corp., 5.65%, 5/1/18(6) 140,502
124,000 Bank of America N.A., 5.30%, 3/15/17(6) 114,174
110,000 Bank of America N.A., 6.00%, 10/15/36(6) 97,931
100,000 Citigroup Inc., 5.50%, 4/11/13(6) 97,739
90,000 Citigroup Inc., 5.00%, 9/15/14(6) 83,559
90,000 Citigroup Inc., 6.125%, 5/15/18(6) 86,408
100,000 General Electric Capital Corp., 6.125%, 2/22/11(6) 104,571
60,000 General Electric Capital Corp., 4.80%, 5/1/13(6) 58,868
140,000 General Electric Capital Corp., 5.625%, 9/15/17(6) 137,347
60,000 John Deere Capital Corp., 4.50%, 4/3/13(6) 59,339
157,000 John Deere Capital Corp., 5.50%, 4/13/17(6) 157,722
- ------
12
VP Balanced
Shares/Principal Amount Value
$ 130,000 Pricoa Global Funding I, 5.40%, 10/18/12
(Acquired 10/11/07, Cost $129,741)(6)(7) $ 129,949
-------------
1,652,455
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7%
154,000 AT&T Corp., 7.30%, 11/15/11(6) 164,200
110,000 AT&T Inc., 6.80%, 5/15/36(6) 110,799
30,000 AT&T Inc., 6.40%, 5/15/38(6) 28,875
24,000 BellSouth Corp., 6.875%, 10/15/31(6) 24,091
120,000 British Telecommunications plc, 5.95%, 1/15/18(6) 115,041
65,000 Embarq Corp., 7.08%, 6/1/16(6) 61,876
30,000 Qwest Corp., 7.875%, 9/1/11(6) 30,150
60,000 Qwest Corp., 7.50%, 10/1/14(6) 58,050
150,000 Telecom Italia Capital SA, 4.00%, 1/15/10(6) 148,056
80,000 Telefonica Emisiones SAU, 7.05%, 6/20/36(6) 82,526
90,000 Verizon Communications Inc., 5.55%, 2/15/16(6) 87,873
70,000 Verizon Communications Inc., 5.50%, 2/15/18(6) 66,782
60,000 Verizon Communications Inc., 6.10%, 4/15/18(6) 59,736
64,000 Verizon Communications Inc., 6.25%, 4/1/37(6) 59,262
100,000 Verizon Communications Inc., 6.40%, 2/15/38(6) 93,585
-------------
1,190,902
-------------
ELECTRIC UTILITIES -- 0.4%
147,000 Carolina Power & Light Co., 5.15%, 4/1/15 146,912
118,000 Cleveland Electric Illuminating Co. (The), 5.70%,
4/1/17 112,528
79,000 Florida Power Corp., 4.50%, 6/1/10 79,852
70,000 Florida Power Corp., 6.35%, 9/15/37 71,487
102,000 Southern California Edison Co., 5.625%, 2/1/36 96,987
60,000 Toledo Edison Co. (The), 6.15%, 5/15/37 52,308
-------------
560,074
-------------
ELECTRICAL EQUIPMENT -- 0.1%
100,000 Rockwell Automation, Inc., 6.25%, 12/1/37(6) 101,141
-------------
FOOD & STAPLES RETAILING -- 0.4%
80,000 CVS Caremark Corp., 5.75%, 6/1/17 78,928
130,000 SYSCO Corp., 4.20%, 2/12/13 127,250
Shares/Principal Amount Value
$ 132,000 Wal-Mart Stores, Inc., 4.125%, 7/1/10 $ 133,842
60,000 Wal-Mart Stores, Inc., 4.25%, 4/15/13 59,754
138,000 Wal-Mart Stores, Inc., 5.875%, 4/5/27 134,355
80,000 Wal-Mart Stores, Inc., 6.50%, 8/15/37 82,714
60,000 Wal-Mart Stores, Inc., 6.20%, 4/15/38 59,230
-------------
676,073
-------------
FOOD PRODUCTS -- 0.5%
205,000 Cadbury Schweppes U.S. Finance LLC, 3.875%,
10/1/08 (Acquired 6/14/05-10/17/06, Cost
$200,791)(6)(7) 204,803
100,000 Cargill Inc., 5.20%, 1/22/13 (Acquired 1/16/08,
Cost $99,917)(6)(7) 99,179
170,000 General Mills, Inc., 5.65%, 9/10/12(6) 173,567
70,000 Kellogg Co., 6.60%, 4/1/11(6) 73,711
100,000 Kellogg Co., 5.125%, 12/3/12(6) 101,454
100,000 Kraft Foods Inc., 6.00%, 2/11/13(6) 101,173
-------------
753,887
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.3%
220,000 Baxter Finco BV, 4.75%, 10/15/10 222,657
150,000 Baxter International Inc., 5.90%, 9/1/16 154,039
70,000 Baxter International Inc., 6.25%, 12/1/37 70,513
-------------
447,209
-------------
HOTELS, RESTAURANTS & LEISURE -- 0.3%
170,000 McDonald's Corp., 5.35%, 3/1/18 166,414
70,000 McDonald's Corp., 6.30%, 10/15/37 69,945
130,000 Royal Caribbean Cruises Ltd., 7.00%, 6/15/13 115,700
70,000 Yum! Brands, Inc., 6.875%, 11/15/37 64,868
-------------
416,927
-------------
HOUSEHOLD PRODUCTS -- 0.1%
70,000 Kimberly-Clark Corp., 6.125%, 8/1/17 72,912
100,000 Procter & Gamble Co. (The), 5.55%, 3/5/37 96,585
-------------
169,497
-------------
- ------
13
VP Balanced
Shares/Principal Amount Value
INDUSTRIAL CONGLOMERATES -- 0.3%
$ 357,000 General Electric Co., 5.00%, 2/1/13(6) $ 360,080
70,000 General Electric Co., 5.25%, 12/6/17(6) 67,515
-------------
427,595
-------------
INSURANCE -- 0.7%
170,000 Allstate Financial Global Funding, 4.25%, 9/10/08
(Acquired 9/3/03, Cost $169,667)(6)(7) 170,247
125,000 Hartford Financial Services Group Inc. (The),
5.375%, 3/15/17(6) 118,149
70,000 Hartford Financial Services Group Inc. (The),
6.30%, 3/15/18(6) 70,152
50,000 Hartford Financial Services Group Inc. (The),
6.00%, 1/15/19(6) 48,232
140,000 Lincoln National Corp., 6.30%, 10/9/37(6) 132,071
150,000 MetLife Global Funding I, 5.125%, 4/10/13
(Acquired 4/7/08, Cost $149,889)(6)(7) 147,919
160,000 New York Life Global Funding, 4.65%, 5/9/13
(Acquired 5/2/08, Cost $159,718)(6)(7) 158,949
100,000 Prudential Financial, Inc., 6.00%, 12/1/17(6) 99,213
80,000 Prudential Financial, Inc., 5.40%, 6/13/35(6) 67,233
70,000 Travelers Companies, Inc. (The), 6.25%, 6/15/37(6) 65,361
-------------
1,077,526
-------------
MACHINERY -- 0.1%
70,000 Atlas Copco AB, 5.60%, 5/22/17 (Acquired 5/15/07,
Cost $69,969)(7) 68,281
70,000 Caterpillar Financial Services Corp., 4.85%,
12/7/12 69,888
-------------
138,169
-------------
MEDIA -- 0.7%
144,000 Comcast Corp., 5.90%, 3/15/16(6) 141,035
60,000 Comcast Corp., 5.70%, 5/15/18(6) 57,087
60,000 Comcast Corp., 6.40%, 5/15/38(6) 55,643
80,000 News America Holdings, 7.75%, 1/20/24(6) 86,756
100,000 Pearson Dollar Finance Two plc, 6.25%, 5/6/18
(Acquired 4/29/08, Cost $99,816)(6)(7) 99,129
Shares/Principal Amount Value
$ 190,000 Rogers Cable Inc., 6.25%, 6/15/13(6) $ 194,445
190,000 Time Warner Cable Inc., 5.40%, 7/2/12(6) 188,321
160,000 Time Warner Cable Inc., 6.75%, 7/1/18(6) 161,514
50,000 Time Warner Inc., 5.50%, 11/15/11(6) 49,319
24,000 Time Warner Inc., 7.625%, 4/15/31(6) 24,477
-------------
1,057,726
-------------
METALS & MINING -- 0.2%
190,000 Rio Tinto Finance USA Ltd., 5.875%, 7/15/13 191,350
58,000 Xstrata Finance Canada Ltd., 5.80%, 11/15/16
(Acquired 11/8/06, Cost $57,857)(7) 54,838
-------------
246,188
-------------
MULTI-UTILITIES -- 0.4%
70,000 CenterPoint Energy Resources Corp., 6.125%,
11/1/17 68,373
100,000 CenterPoint Energy Resources Corp., 6.25%, 2/1/37 89,196
76,000 Dominion Resources Inc., 4.75%, 12/15/10 76,545
140,000 NSTAR Electric Co., 5.625%, 11/15/17 141,882
120,000 Pacific Gas and Electric Co., 4.20%, 3/1/11 119,100
80,000 Pacific Gas and Electric Co., 6.05%, 3/1/34 77,552
48,000 Pacific Gas and Electric Co., 5.80%, 3/1/37 45,004
60,000 Pacific Gas and Electric Co., 6.35%, 2/15/38 60,307
-------------
677,959
-------------
MULTILINE RETAIL -- 0.2%
52,000 Federated Retail Holdings, Inc., 5.35%, 3/15/12 48,374
70,000 Kohl's Corp., 6.875%, 12/15/37 63,344
180,000 Macy's Retail Holdings, Inc., 5.875%, 1/15/13 167,264
-------------
278,982
-------------
OIL, GAS & CONSUMABLE FUELS -- 0.7%
70,000 Canadian Natural Resources Ltd., 5.70%, 5/15/17(6) 68,759
70,000 Canadian Natural Resources Ltd., 6.75%, 2/1/39(6) 70,530
130,000 Enbridge Energy Partners, L.P., 6.50%, 4/15/18
(Acquired 3/31/08, Cost $129,306)(6)(7) 130,928
232,000 Enterprise Products Operating L.P., 4.95%,
6/1/10(6) 232,095
- ------
14
VP Balanced
Shares/Principal Amount Value
$ 80,000 Enterprise Products Operating L.P., 6.30%,
9/15/17(6) $79,688
110,000 Nexen Inc., 6.40%, 5/15/37(6) 104,710
181,000 Premcor Refining Group Inc. (The), 6.125%,
5/1/11(6) 182,160
80,000 Tesoro Corp., 6.25%, 11/1/12(6) 76,400
40,000 TransCanada PipeLines Ltd., 6.20%, 10/15/37(6) 36,864
101,000 XTO Energy Inc., 5.30%, 6/30/15(6) 98,840
80,000 XTO Energy Inc., 6.10%, 4/1/36(6) 76,544
30,000 XTO Energy Inc., 6.375%, 6/15/38(6) 28,802
-------------
1,186,320
-------------
PHARMACEUTICALS -- 0.6%
85,000 Abbott Laboratories, 5.875%, 5/15/16 87,707
50,000 Abbott Laboratories, 5.60%, 11/30/17 50,599
310,000 AstraZeneca plc, 5.40%, 9/15/12(6) 317,449
110,000 AstraZeneca plc, 5.90%, 9/15/17(6) 113,061
160,000 GlaxoSmithKline Capital Inc., 4.85%, 5/15/13 160,024
90,000 GlaxoSmithKline Capital Inc., 6.375%, 5/15/38 89,752
77,000 Wyeth, 5.95%, 4/1/37 74,674
-------------
893,266
-------------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.1%
140,000 ProLogis, 5.625%, 11/15/16 130,040
-------------
ROAD & RAIL -- 0.1%
100,000 Union Pacific Corp., 5.75%, 11/15/17 98,677
-------------
SOFTWARE -- 0.4%
75,000 Intuit Inc., 5.75%, 3/15/17(6) 70,657
161,000 Oracle Corp., 5.00%, 1/15/11(6) 164,271
330,000 Oracle Corp., 5.75%, 4/15/18(6) 330,819
-------------
565,747
-------------
SPECIALTY RETAIL(1)
70,000 Lowe's Companies, Inc., 5.60%, 9/15/12 72,234
-------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
92,000 Vodafone Group plc, 5.625%, 2/27/17 88,855
-------------
TOTAL CORPORATE BONDS
(Cost $16,497,546) 16,234,319
-------------
Shares/Principal Amount Value
Collateralized Mortgage Obligations(4) -- 9.7%
$ 405,858 Banc of America Alternative Loan Trust, Series
2007-2, Class 2A4, 5.75%, 6/25/37(6) $ 376,058
3,810,409 Banc of America Commercial Mortgage Inc. STRIPS -
COUPON, Series 2004-1, Class XP, VRN, 0.64%,
7/1/08 54,466
450,000 Banc of America Commercial Mortgage Inc., Series
2004-2, Class A3 SEQ, 4.05%, 11/10/38(6) 440,603
300,000 Banc of America Commercial Mortgage Inc., Series
2006-6, Class A3 SEQ, 5.37%, 12/10/16(6) 284,423
690,000 Banc of America Commercial Mortgage Inc., Series
2007-4, Class A3 SEQ, 5.81%, 8/10/14(6) 660,309
5,192,833 Bear Stearns Commercial Mortgage Securities Trust
STRIPS - COUPON, Series 2004 T16, Class X2, VRN,
0.72%, 7/1/08(6) 125,978
356,419 Bear Stearns Commercial Mortgage Securities
Trust, Series 2006 BBA7, Class A1, VRN, 2.58%,
7/15/08, resets monthly off the 1-month LIBOR
plus 0.11% with no caps (Acquired 6/5/06, Cost
$356,419)(6)(7) 340,749
800,000 Bear Stearns Commercial Mortgage Securities
Trust, Series 2006 PW14, Class A4 SEQ, 5.20%,
12/1/38(6) 747,741
19,514 Commercial Mortgage Pass-Through Certificates,
Series 2005 F10A, Class A1, VRN, 2.57%, 7/15/08,
resets monthly off the 1-month LIBOR plus 0.10%
with no caps (Acquired 3/18/05, Cost $19,514)(7) 18,989
1,378,454 Countrywide Home Loan Mortgage Pass-Through
Trust, Series 2007-16, Class A1, 6.50%,
10/25/37(6) 1,352,032
150,000 Credit Suisse First Boston Mortgage Securities
Corp., Series 2000 C1, Class B, VRN, 7.66%,
7/11/08(6) 157,409
300,000 Credit Suisse First Boston Mortgage Securities
Corp., Series 2001 CK3, Class A4 SEQ, 6.53%,
6/15/34(6) 308,563
- ------
15
VP Balanced
Shares/Principal Amount Value
$ 300,000 Credit Suisse First Boston Mortgage Securities
Corp., Series 2002 CKN2, Class A3 SEQ, 6.13%,
4/15/37(6) $ 306,461
1,500,000 Credit Suisse First Boston Mortgage Securities
Corp., Series 2002 CKP1, Class B, 6.57%,
12/15/35(6) 1,550,638
567,571 Credit Suisse First Boston Mortgage Securities
Corp., Series 2003 AR28, Class 2A1, 4.41%,
12/25/33(6) 567,026
200,000 Credit Suisse Mortgage Capital Certificates,
Series 2007 TF2A, Class A1, VRN, 2.65%, 7/15/08,
resets monthly off the 1-month LIBOR plus 0.18%
with no caps (Acquired 7/24/07, Cost
$200,000)(6)(7) 191,681
549,478 FHLMC, Series 2527, Class BN SEQ, 5.00%,
2/15/16(6) 553,859
443,927 FHLMC, Series 2567, Class OD, 5.00%, 8/15/15(6) 448,933
350,000 FHLMC, Series 2926, Class EW SEQ, 5.00%,
1/15/25(6) 338,488
199,353 FHLMC, Series 2937, Class KA, 4.50%, 12/15/14(6) 199,995
122,000 FNMA, Series 2003-92, Class PD, 4.50%, 3/25/17(6) 121,437
707,479 FNMA, Series 2005-63, Class HA SEQ, 5.00%,
4/25/23(6) 715,133
500,000 Greenwich Capital Commercial Funding Corp.,
Series 2005 GG3, Class A2 SEQ, 4.31%, 1/10/10(6) 496,601
104,882 Greenwich Capital Commercial Funding Corp.,
Series 2006 FL4A, Class A1, VRN, 2.54%, 7/7/08,
resets monthly off the 1-month LIBOR plus 0.09%
with no caps (Acquired 12/14/06, Cost
$104,882)(6)(7) 98,402
126,946 GS Mortgage Securities Corp. II, Series 2007 EOP,
Class A1, VRN, 2.54%, 7/7/08, resets monthly off
the 1-month LIBOR plus 0.09% with no caps(6) 118,895
376,587 JPMorgan Mortgage Trust, Series 2005 A8, Class
6A2, 5.13%, 11/25/35(6) 370,333
1,000,000 LB-UBS Commercial Mortgage Trust, Series 2003 C3,
Class A3 SEQ, 3.85%, 5/15/27(6) 961,032
300,000 LB-UBS Commercial Mortgage Trust, Series 2004 C1,
Class A2 SEQ, 3.62%, 1/15/29(6) 297,645
Shares/Principal Amount Value
$ 404,487 LB-UBS Commercial Mortgage Trust, Series 2005 C2,
Class A2 SEQ, 4.82%, 4/15/30(6) $ 403,783
900,000 LB-UBS Commercial Mortgage Trust, Series 2005 C3,
Class A3 SEQ, 4.65%, 7/30/30(6) 878,254
100,000 LB-UBS Commercial Mortgage Trust, Series 2006 C1,
Class A4 SEQ, 5.16%, 2/15/31(6) 94,286
59,054 Lehman Brothers Floating Rate Commercial Mortgage
Trust, Series 2006 LLFA, Class A1, VRN, 2.55%,
7/15/08, resets monthly off the 1-month LIBOR
plus 0.08% with no caps (Acquired 8/7/06, Cost
$59,054)(7) 56,211
29,947 MASTR Alternative Loans Trust, Series 2003-8,
Class 4A1, 7.00%, 12/25/33 29,366
269,205 Merrill Lynch Floating Trust, Series 2006-1,
Class A1, VRN, 2.54%, 7/15/08, resets monthly off
the 1-month LIBOR plus 0.07% with no caps
(Acquired 10/31/06, Cost $269,205)(7) 253,318
250,663 Thornburg Mortgage Securities Trust, Series
2006-5, Class A1, VRN, 2.60%, 7/25/08, resets
monthly off the 1-month LIBOR plus 0.12% with no
caps(6) 241,814
275,000 Washington Mutual Mortgage Pass-Through
Certificates, Series 2005 AR4, Class A3, 4.59%,
4/25/35(6) 272,763
679,455 Wells Fargo Mortgage Backed Securities Trust,
Series 2007-11, Class A19 SEQ, 6.00%, 8/25/37(6) 671,455
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $15,335,278) 15,105,129
-------------
U.S. Treasury Securities -- 7.6%
580,000 U.S. Treasury Bonds, 8.125%, 8/15/19(6) 776,022
1,770,000 U.S. Treasury Bonds, 8.125%, 8/15/21(6) 2,421,305
190,000 U.S. Treasury Bonds, 6.25%, 5/15/30(3) 234,338
297,000 U.S. Treasury Bonds, 4.75%, 2/15/37(3) 307,581
2,513,494 U.S. Treasury Inflation Indexed Bonds, 2.375%,
1/15/27(3) 2,632,297
830,212 U.S. Treasury Inflation Indexed Notes, 3.00%,
7/15/12(6) 912,131
- ------
16
VP Balanced
Shares/Principal Amount Value
$ 929,912 U.S. Treasury Inflation Indexed Notes, 2.00%,
1/15/14(6) $ 987,959
717,654 U.S. Treasury Inflation Indexed Notes, 1.625%,
1/15/18(6) 729,765
2,880,000 U.S. Treasury Notes, 3.50%, 5/31/13(3) 2,904,302
-------------
TOTAL U.S. TREASURY SECURITIES
(Cost $11,723,542) 11,905,700
-------------
Municipal Securities -- 2.3%
1,100,000 Clark County School District GO, Series 2004 D,
(Building Bonds), 5.00%, 12/15/14, Prerefunded at
100% of Par (MBIA)(6)(8) 1,192,510
1,100,000 Clark County School District GO, Series 2005 C,
(Building Bonds), 5.00%, 12/15/15, Prerefunded at
100% of Par (FSA)(6)(8) 1,195,359
300,000 Illinois GO, (Taxable Pension), 5.10%, 6/1/33(6) 283,617
800,000 Massachusetts GO, Series 2005 C, 5.00%, 9/1/15,
Prerefunded at 100% of Par(6)(8) 868,496
-------------
TOTAL MUNICIPAL SECURITIES
(Cost $3,539,434) 3,539,982
-------------
Adjustable-Rate U.S. Government Agency Mortgage-Backed Securities(4) -- 1.8%
545,641 FHLMC, 6.80%, 8/1/36(6) 557,213
865,384 FHLMC, 6.00%, 11/1/36(6) 883,503
419,634 FNMA, 6.49%, 5/1/36(6) 429,977
280,281 FNMA, 6.42%, 9/1/36(6) 288,081
325,848 FNMA, 6.45%, 9/1/36(6) 335,940
366,622 FNMA, 5.96%, 6/1/37(6) 373,304
-------------
TOTAL ADJUSTABLE-RATE U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES
(Cost $2,861,068) 2,868,018
-------------
Asset-Backed Securities(4) -- 0.4%
74,841 Accredited Mortgage Loan Trust, Series 2006-2,
Class A1, VRN, 2.52%, 7/25/08, resets monthly off
the 1-month LIBOR plus 0.04% with no caps 74,208
300,000 CNH Equipment Trust, Series 2007 C, Class A3A
SEQ, 5.21%, 12/15/11 305,490
Shares/Principal Amount Value
$ 107,326 Long Beach Mortgage Loan Trust, Series 2006-6,
Class 2A1, VRN, 2.52%, 7/25/08, resets monthly
off the 1-month LIBOR plus 0.04% with no caps $ 106,866
85,072 SLM Student Loan Trust, Series 2006-5, Class A2,
VRN, 2.91%, 7/25/08, resets quarterly off the
3-month LIBOR minus 0.01% with no caps 84,772
64,886 SLM Student Loan Trust, Series 2006-10, Class A2,
VRN, 2.93%, 7/25/08, resets quarterly off the
3-month LIBOR plus 0.01% with no caps 64,758
7,317 Soundview Home Equity Loan Trust, Series 2006-3,
Class A1, VRN, 2.52%, 7/25/08, resets monthly off
the 1-month LIBOR plus 0.04% with no caps 7,309
-------------
TOTAL ASSET-BACKED SECURITIES
(Cost $639,420) 643,403
-------------
Sovereign Governments & Agencies -- 0.1%
44,000 Hydro Quebec, 8.40%, 1/15/22 58,890
170,000 Province of Quebec, 5.00%, 7/17/09 173,060
-------------
TOTAL SOVEREIGN GOVERNMENTS & AGENCIES
(Cost $222,484) 231,950
-------------
Temporary Cash Investments -- 2.1%
Repurchase Agreement, Morgan Stanley Group, Inc., (collateralized
by various U.S. Treasury obligations, 6.00%, 2/15/26, valued at
$3,257,264), in a joint trading account at 1.65%, dated 6/30/08,
due 7/1/08 (Delivery value $3,200,147)(6) (Cost $3,200,000) 3,200,000
-------------
Temporary Cash Investments - Securities Lending Collateral(9) -- 3.4%
Repurchase Agreement, Barclays Capital Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 2.50%, dated 6/30/08, due 7/1/08 (Delivery
value $1,250,087) 1,250,000
Repurchase Agreement, BNP Paribas Securities Corp.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 2.45%, dated 6/30/08, due
7/1/08 (Delivery value $1,250,085) 1,250,000
- ------
17
VP Balanced Value
Repurchase Agreement, Deutsche Bank Securities Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 2.50%, dated 6/30/08, due
7/1/08 (Delivery value $1,250,087) $ 1,250,000
Repurchase Agreement, UBS Securities LLC, (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 2.65%, dated 6/30/08, due 7/1/08 (Delivery
value $1,542,788) 1,542,674
-------------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES LENDING COLLATERAL
(Cost $5,292,674) 5,292,674
-------------
TOTAL INVESTMENT SECURITIES -- 106.9%
(Cost $161,209,648) 166,844,516
-------------
OTHER ASSETS AND LIABILITIES -- (6.9)% (10,814,046)
-------------
TOTAL NET ASSETS -- 100.0% $156,030,470
=============
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
101 U.S. Treasury
2-Year Notes September 2008 $21,331,516 $ 18,710
59 U.S. Treasury
5-Year Notes September 2008 6,522,727 (31,015)
------------- -------------
$27,854,243 $(12,305)
============= =============
Underlying Face Unrealized
Contracts Sold Expiration Date Amount at Value Gain (Loss)
19 U.S. Long Bond September 2008 $ 2,196,281 $ 2,129
78 U.S. Treasury
10-Year Notes September 2008 8,885,906 (55,292)
------------- -------------
$11,082,187 $(53,163)
============= =============
- ------
18
VP Balanced
Swap Agreements
Notional Unrealized
Amount Description of Agreement Expiration Date Gain (Loss)
CREDIT DEFAULT
$1,100,000 Pay quarterly a fixed rate equal June 2012 $ 47,446
to 0.35% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of one of the
issues of Dow Jones CDX N.A.
Investment Grade 8, par value of
the proportional notional amount.
385,000 Pay quarterly a fixed rate equal September 2012 22,210
to 0.63% multiplied by the
notional amount and receive from
Deutsche Bank AG upon each
default event of Morgan Stanley,
par value of the proportional
notional amount of Morgan
Stanley, 6.60%, 4/1/12.
170,000 Pay quarterly a fixed rate equal December 2012 9,280
to 0.73% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of American
International Group, Inc., par
value of the proportional
notional amount of American
International Group, Inc., 4.25%,
5/15/13.
170,000 Pay quarterly a fixed rate equal December 2012 2,886
to 2.45% multiplied by the
notional amount and receive from
Bank of America N.A. upon each
default event of Toll Brothers,
Inc., par value of the
proportional notional amount of
Toll Brothers Finance Corp.,
6.875%, 11/15/12.
170,000 Pay quarterly a fixed rate equal December 2012 331
to 2.85% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of Toll Brothers,
Inc., par value of the
proportional notional amount of
Toll Brothers Finance Corp.,
6.875%, 11/15/12.
70,000 Pay quarterly a fixed rate equal March 2013 113
to 0.70% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of Rohm and Haas
Co., par value of the
proportional notional amount of
Rohm and Haas Co., 7.85%, 7/15/29.
270,000 Pay quarterly a fixed rate equal June 2013 1,301
to 0.60% multiplied by the
notional amount and receive from
Deutsche Bank AG upon each
default event of Marsh & McLennan
Companies, Inc., par value of the
proportional notional amount of
Marsh & McLennan Companies, Inc.,
5.375%, 7/15/14.
350,000 Pay quarterly a fixed rate equal June 2013 (637)
to 1.28% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of Staples, Inc.,
par value of the proportional
notional amount of Staples, Inc.,
7.375%, 10/1/12.
750,000 Pay quarterly a fixed rate equal March 2017 15,634
to 0.12% multiplied by the
notional amount and receive from
Barclays Bank plc upon each
default event of Pfizer Inc., par
value of the proportional
notional amount of Pfizer Inc.,
4.65%, 3/1/18.
390,000 Pay quarterly a fixed rate equal September 2017 14,314
to 0.64% multiplied by the
notional amount and receive from
Deutsche Bank AG upon each
default event of JPMorgan Chase &
Co., par value of the
proportional notional amount of
JPMorgan Chase & Co., 6.75%,
2/1/11.
-------------
$112,878
=============
- ------
19
VP Balanced
Notes to Schedule of Investments
CDX = Credit Derivative Indexes
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance, Inc
GNMA = Government National Mortgage Association
GO = General Obligation
LB-UBS = Lehman Brothers Inc. -- UBS AG
LIBOR = London Interbank Offered Rate
MASTR = Mortgage Asset Securitization Transactions, Inc.
MBIA = MBIA Insurance Corporation
resets = The frequency with which a security's coupon changes, based on
current market conditions or an underlying index. The more frequently a
security resets, the less risk the investor is taking that the coupon will
vary significantly from current market rates.
SEQ = Sequential Payer
STRIPS = Separate Trading of Registered Interest and Principal of Securities
VRN = Variable Rate Note. Interest reset date is indicated. Rate shown is
effective June 30, 2008.
(1) Industry is less than 0.05% of total net assets.
(2) Non-income producing.
(3) Security, or a portion thereof, was on loan as of June 30, 2008.
(4) Final maturity indicated, unless otherwise noted.
(5) Forward commitment.
(6) Security, or a portion thereof, has been segregated for forward
commitments, futures contracts and/or swap agreements.
(7) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at June 30, 2008 was $2,542,816,
which represented 1.6% of total net assets.
(8) Escrowed to maturity in U.S. government securities or state and local
government securities.
(9) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
20
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $155,916,974) -
including $5,744,455 of securities on loan $161,551,842
Investments made with cash collateral received for securities on
loan, at value (cost of $5,292,674) 5,292,674
-------------
Total investment securities, at value (cost of $161,209,648) 166,844,516
Receivable for investments sold 297,968
Receivable for variation margin on futures contracts 12,907
Unrealized appreciation on swap agreements 113,515
Dividends and interest receivable 613,188
-------------
167,882,094
-------------
LIABILITIES
Disbursements in excess of demand deposit cash 159,450
Payable for collateral received for securities on loan 5,292,674
Payable for investments purchased 6,280,604
Unrealized depreciation on swap agreements 637
Accrued management fees 118,259
-------------
11,851,624
-------------
NET ASSETS $156,030,470
=============
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
Authorized 100,000,000
=============
Outstanding 24,768,345
=============
NET ASSET VALUE PER SHARE $6.30
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $149,695,505
Undistributed net investment income 1,891,118
Accumulated net realized loss on investment transactions (1,239,147)
Net unrealized appreciation on investments 5,682,994
-------------
$156,030,470
=============
See Notes to Financial Statements.
- ------
21
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Interest $ 1,834,515
Dividends (net of foreign taxes withheld of $2,777) 797,393
Securities lending, net 28,621
-------------
2,660,529
-------------
EXPENSES:
Management fees 747,780
Directors' fees and expenses 1,817
Other expenses 703
-------------
750,300
-------------
NET INVESTMENT INCOME (LOSS) 1,910,229
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (1,452,020)
Futures and swaps transactions 786,519
-------------
(665,501)
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (9,886,452)
Futures and swaps (159,683)
-------------
(10,046,135)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (10,711,636)
-------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(8,801,407)
=============
See Notes to Financial Statements.
- ------
22
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 1,910,229 $ 4,043,263
Net realized gain (loss) (665,501) 11,477,949
Change in net unrealized appreciation
(depreciation) (10,046,135) (6,060,662)
------------- -------------
Net increase (decrease) in net assets resulting
from operations (8,801,407) 9,460,550
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (4,014,533) (4,078,291)
From net realized gains (11,632,274) (9,929,527)
------------- -------------
Decrease in net assets from distributions (15,646,807) (14,007,818)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 7,240,186 18,650,406
Proceeds from reinvestment of distributions 15,646,807 14,007,818
Payments for shares redeemed (24,997,367) (43,323,502)
------------- -------------
Net increase (decrease) in net assets from
capital share transactions (2,110,374) (10,665,278)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (26,558,588) (15,212,546)
NET ASSETS
Beginning of period 182,589,058 197,801,604
------------- -------------
End of period $156,030,470 $182,589,058
============= =============
Undistributed net investment income $1,891,118 $4,014,362
============= =============
TRANSACTIONS IN SHARES OF THE FUND
Sold 1,080,701 2,542,844
Issued in reinvestment of distributions 2,491,530 2,015,513
Redeemed (3,707,848) (5,914,389)
------------- -------------
Net increase (decrease) (135,617) (1,356,032)
============= =============
See Notes to Financial Statements.
- ------
23
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Balanced Fund (the fund) is one
fund in a series issued by the corporation. The fund is diversified under the
1940 Act. The fund's investment objective is to seek long-term capital growth
and current income. The fund pursues its investment objective by investing
approximately 60% of the fund's assets in equity securities and the remaining
assets in bonds and other fixed-income securities. The following is a summary
of the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes paydown gain (loss) and accretion of discounts and
amortization of premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
- ------
24
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. In these
transactions, the securities' prices and yields are fixed on the date of the
commitment. In a when-issued transaction, the payment and delivery are
scheduled for a future date and during this period, securities are subject to
market fluctuations. In a forward commitment transaction, the fund may sell a
security and at the same time make a commitment to purchase the same security
at a future date at a specified price. Conversely, the fund may purchase a
security and at the same time make a commitment to sell the same security at a
future date at a specified price. These types of transactions are executed
simultaneously in what are known as "roll" transactions. The fund will
segregate cash, cash equivalents or other appropriate liquid securities on its
records in amounts sufficient to meet the purchase price. The fund accounts
for "roll" transactions as purchases and sales; as such these transactions may
increase portfolio turnover.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks
of entering into futures contracts is the possibility that the change in value
of the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage
of the contract value (initial margin). Subsequent payments (variation margin)
are made or received daily, in cash, by the fund. The variation margin is
equal to the daily change in the contract value and is recorded as unrealized
gains and losses. The fund recognizes a realized gain or loss when the
contract is closed or expires. Net realized and unrealized gains or losses
occurring during the holding period of futures contracts are a component of
realized gain (loss) on futures and swaps transactions and unrealized
appreciation (depreciation) on futures and swaps, respectively.
SWAP AGREEMENTS -- The fund may enter into swap agreements in order to attempt
to obtain or preserve a particular return or spread at a lower cost than
obtaining a return or spread through purchases and/or sales of instruments in
other markets; protect against currency fluctuations; attempt to manage
duration to protect against any increase in the price of securities the fund
anticipates purchasing at a later date; or gain exposure to certain markets in
the most economical way possible. A basic swap agreement is a contract in
which two parties agree to exchange the returns earned or realized on
predetermined investments or instruments. Credit default swaps enable an
investor to buy/sell protection against a credit event of a specific issuer.
The seller of credit protection against a security or basket of securities
receives an up-front or periodic payment to compensate against potential
default events. The fund may enhance returns by selling protection or attempt
to mitigate credit risk by buying protection. The fund will segregate cash,
cash equivalents or other appropriate liquid securities on its records in
amounts sufficient to meet requirements. Unrealized gains are reported as an
asset and unrealized losses are reported as a liability on the Statement of
Assets and Liabilities. Swap agreements are valued daily and changes in value,
including the periodic amounts of interest to be paid or received on swaps,
are recorded as unrealized appreciation (depreciation) on futures and swaps.
Realized gain or loss is recorded upon receipt or payment of a periodic
settlement or termination of swap agreements. The risks of entering into swap
agreements include the possible lack of liquidity, failure of the counterparty
to meet its obligations, and that there may be unfavorable changes in the
underlying investments and instruments.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of paydown losses, interest on swap agreements,
certain income items and net realized gains and losses for financial statement
and tax purposes, and may result in reclassification among certain capital
accounts on the financial statements.
- ------
25
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the
fee). The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed
and accrued daily based on the daily net assets of the fund and paid monthly
in arrears. For funds with a stepped fee schedule, the rate of the fee is
determined by applying a fee rate calculation formula. This formula takes into
account all of the investment advisor's assets under management in the fund's
investment strategy (strategy assets) to calculate the appropriate fee rate
for the fund. The strategy assets include the fund's assets and the assets of
other clients of the investment advisor that are not in the American Century
Investments family of funds, but that have the same investment team and
investment strategy. The annual management fee schedule for the fund ranges
from 0.80% to 0.90%. The effective annual management fee for the fund for the
six months ended June 30, 2008 was 0.90%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for the
six months ended June 30, 2008, totaled $112,122,376, of which $52,902,763
represented U.S. Treasury and Agency obligations.
Sales of investment securities, excluding short-term investments, for the six
months ended June 30, 2008, totaled $124,920,703, of which $58,149,363
represented U.S. Treasury and Agency obligations.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes were as follows:
Federal tax cost of investments $161,648,094
=============
Gross tax appreciation of investments $12,060,481
Gross tax depreciation of investments (6,864,059)
-------------
Net tax appreciation (depreciation) of investments $ 5,196,422
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
- ------
26
4. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $5,744,455 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The total market value of all collateral
received, at this date, was $5,929,273. The fund's risks in securities lending
are that the borrower may not provide additional collateral when required or
return the securities when due. If the borrower defaults, receipt of the
collateral by the fund may be delayed or limited.
5. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Value of Unrealized Gain (Loss)
Investment on Other
Valuation Inputs Securities Financial Instruments*
Level 1 -- Quoted Prices $ 86,618,864 $(65,468)
Level 2 -- Other Significant
Observable Inputs 80,225,652 112,878
Level 3 -- Significant
Unobservable Inputs -- --
------------- -------------
$166,844,516 $ 47,410
============= =============
*Includes futures contracts and swap agreements.
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
- ------
27
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
28
FINANCIAL HIGHLIGHTS
VP Balanced
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $7.33 $7.53 $7.50 $7.28 $6.74 $5.81
-------- -------- -------- -------- -------- --------
Income From
Investment Operations
Net Investment
Income (Loss) 0.08(2) 0.15(2) 0.16 0.14 0.13 0.11
Net Realized
and Unrealized
Gain (Loss) (0.45) 0.19 0.51 0.21 0.52 0.98
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.37) 0.34 0.67 0.35 0.65 1.09
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.17) (0.16) (0.15) (0.13) (0.11) (0.16)
From Net
Realized Gains (0.49) (0.38) (0.49) --(3) -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.66) (0.54) (0.64) (0.13) (0.11) (0.16)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $6.30 $7.33 $7.53 $7.50 $7.28 $6.74
======== ======== ======== ======== ======== ========
TOTAL RETURN(4) (4.94)% 4.94% 9.62% 4.93% 9.78% 19.46%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average
Net Assets 0.90%(5) 0.90% 0.90% 0.89% 0.90% 0.90%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 2.30%(5) 2.08% 2.05% 1.86% 1.80% 1.85%
Portfolio Turnover
Rate 69% 161% 191% 191% 205% 142%
Net Assets,
End of Period
(in thousands) $156,030 $182,589 $197,802 $205,032 $220,449 $214,841
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.
(5) Annualized.
See Notes to Financial Statements.
- ------
29
APPROVAL OF MANAGEMENT AGREEMENT
VP Balanced
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Balanced Fund (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
30
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based
on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund.
- ------
31
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's quarter end performance fell below the median for its
peer group for both the one- and three-year periods during the past year. The
board discussed the fund's performance with the advisor and was satisfied with
the efforts being undertaken by the advisor. The board will continue to
monitor these efforts and the performance of the fund. More detailed
information about the fund's performance can be found in the Performance and
Portfolio Commentary sections of this report.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
32
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group. The board concluded that the management fee paid by the
fund to the advisor was reasonable in light of the services provided to the
fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
33
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
34
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The BLENDED INDEX is considered the benchmark for VP Balanced. It combines two
widely known indices in proportion to the asset mix of the fund. Accordingly,
60% of the index is represented by the S&P 500 Index, which reflects the
approximately 60% of the fund's assets invested in stocks. The remaining 40%
of the index is represented by the Citigroup US Broad Investment-Grade (BIG)
Bond Index, which reflects the roughly 40% of the fund's assets invested in
fixed-income securities.
The CITIGROUP AGENCY INDEX is a market-capitalization-weighted index that
includes U.S. government sponsored agencies with a remaining maturity of at
least one year.
The CITIGROUP CREDIT INDEX includes US and non-US corporate securities and
non-US sovereign and provincial securities.
The CITIGROUP MORTGAGE INDEX measures the mortgage component of the US BIG
Index, comprising 15- and 30-year GNMA, FNMA, and FHLMC pass-throughs and FNMA
and FHLMC balloon mortgages.
The CITIGROUP TREASURY INDEX is comprised of US Treasury securities with an
amount outstanding of at least $5 billion and a remaining maturity of at least
one year.
The CITIGROUP US BROAD INVESTMENT-GRADE (BIG) BOND INDEX is a market-
capitalization-weighted index that includes fixed-rate Treasury, government-
sponsored, mortgage, asset-backed, and investment-grade issues with a maturity
of one year or longer.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure of
U.S. stock market performance.
- ------
35
NOTES
- ------
36
[back cover]
[american century investments logo and text logo®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61141
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP CAPITAL APPRECIATION FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S Stock Index Returns. . . . . . . . . . . . . . . . . . . . . . . 2
VP CAPITAL APPRECIATION
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example. . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . 11
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 14
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER INFORMATION
Approval of Management Agreement for VP Capital Appreciation. . . . . 19
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 23
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Capital Appreciation
Total Returns as of June 30, 2008
Average Annual Returns
10 Since Inception
6 months(1) 1 year 5 years years Inception Date
CLASS I -7.21% 8.15% 18.69% 9.47% 9.21% 11/20/87
RUSSELL MIDCAP
GROWTH INDEX(2) -6.81% -6.42% 12.32% 5.64% 12.02%(3) --
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
(3) Since 11/30/87, the date nearest Class I's inception for which data are
available.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. The
fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. International
investing involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
3
VP Capital Appreciation
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1998
One-Year Returns Over 10 Years
Periods ended June 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Class I 12.58% 66.39% -20.36% -24.61% -6.68% 16.69% 9.54% 27.36% 33.89% 8.15%
Russell
Midcap
Growth
Index 20.31% 48.59% -31.51% -26.34% 7.35% 27.33% 10.86% 13.04% 19.73% -6.42%
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. The
fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. International
investing involves special risks, such as political instability and currency
fluctuations. Investing in emerging markets may accentuate these risks.
Data assumes reinvestment of dividends and capital gains, and none of the
charts reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
4
PORTFOLIO COMMENTARY
VP Capital Appreciation
Portfolio Managers: David Hollond and Greg Walsh
In February 2008, Glenn Fogle left the team to focus on the American Century
Vista and VP Vista funds. Greg Walsh joined the team as a portfolio manager.
PERFORMANCE SUMMARY
VP Capital Appreciation returned -7.21%* for the six months ended June 30,
2008, modestly lagging the -6.81% return of the portfolio's benchmark, the
Russell Midcap Growth Index. For the longer time periods of one, five and ten
years, VP Capital Appreciation outperformed its benchmark.
Looking more closely at the six-month time frame, VP Capital Appreciation
underperformed during the first three months but significantly exceeded its
benchmark in the second three months of the period. In late January investor
sentiment rotated away from companies that had done well last year and into
laggards such as thrifts, mortgage finance and home building-related firms.
While the rotation has caused near-term underperformance, our focus on the
growth trends of these companies suggested continued avoidance. That stance
was rewarded in the second half of the period.
Within the portfolio, poor security selection in the consumer discretionary,
information technology, and financials sectors detracted from absolute and
relative performance. An overweight allocation and effective stock selection
in the materials and industrials sectors helped to mitigate losses.
We allocated a portion of VP Capital Appreciation's assets to holdings of
companies outside of the United States. This allocation detracted from
portfolio returns, as international stocks generated weaker returns than the
domestic market.
CONSUMER DISCRETIONARY, INFORMATION TECHNOLOGY LAGGED
The consumer discretionary group weighed on VP Capital Appreciation's
performance. Within the sector, video game retailer GameStop, which enjoyed a
robust video game cycle in recent periods, declined during the current
reporting period. Although Gamestop delivered healthy earnings levels and
raised guidance, it fell victim to apparent investor concern that it would be
adversely affected by the slowing economic environment.
An overweight stake in ITT Educational Services hindered performance as the
private education company suffered from the fallout from the credit crunch. As
with the subprime mortgage industry, private education firms experienced
diminished loan origination capabilities as investors shied away from student
loans.
The portfolio has benefited in the past from a stake in the hotels,
restaurants and leisure group, where we focused on several casinos and makers
of slot machines.
Top Ten Holdings as of June 30, 2008
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
CSL Ltd. ORD 3.2% 2.1%
Flowserve Corp. 3.2% 3.1%
Owens-Illinois Inc. 3.1% 3.2%
Monsanto Co. 3.0% 3.1%
Nintendo Co., Ltd. ORD 2.7% 3.2%
Petrohawk Energy Corp. 2.5% --
NII Holdings, Inc. 2.0% 1.5%
MEMC Electronic Materials Inc. 2.0% 1.0%
Weatherford International Ltd. 1.9% --
Express Scripts, Inc. 1.8% 2.0%
*Total returns for periods less than one year are not annualized.
- ------
5
VP Capital Appreciation
These companies collectively suffered traffic declines in the reporting period
and detracted from performance.
In the information technology sector, the portfolio held a stake in Apple,
which had posted solid gains in the past, experiencing a surge in sales with
the introduction of the iPhone. Apple provided lower guidance for the second
quarter, and its share price slid 15%.
INDUSTRIALS HELPED, BUT CERTAIN HOLDINGS LAGGED
Within the industrials sector, we maintained an overweight position in the
aerospace and defense industry. Holdings within this group have contributed
significantly to portfolio gains in the past, benefiting from a replacement
cycle and expanding orders in global aviation. During the reporting period,
this group lost ground amid market volatility and investor nervousness about
rising oil prices. BE Aerospace, in particular, declined 56% and detracted
from performance, although it delivered strong first quarter earnings and
raised guidance for the full year.
Elsewhere in the industrials sector, the portfolio held an overweight position
in machinery company Flowserve. A maker of pumps, seals, and valves to end
users in the oil and gas, power, chemicals, and water industries, Flowserve
was a key contributor to portfolio performance for the reporting period as its
share price gained 43%.
MATERIALS CONTRIBUTED
Select holdings in the materials sector reaped rewards from increased global
demand for agriculture and corresponding rising commodities prices. Here, we
focused on chemicals companies. Notably, agricultural chemicals company K+S
AG's share price gained 144% for the reporting period as the company continued
to benefit from higher demand in the fertilizer market. Not a constituent of
the benchmark, the company was a substantial contributor to relative
performance.
OUTLOOK
VP Capital Appreciation's investment process focuses on medium-sized and
smaller companies with accelerating earnings growth rates and share price
momentum. We believe that active investing in such companies will generate
outperformance over time compared with the Russell Midcap Growth Index.
We believe that our process works well, despite the current high levels of
market volatility. We are confident in our current sector emphasis, and
continue monitoring the market for any meaningful, sustainable changes in
sector leadership.
Top Five Industries as of June 30, 2008
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
Oil, Gas & Consumable Fuels 6.9% 1.2%
Semiconductors & Semiconductors Equipment 6.9% 3.3%
Chemicals 6.7% 4.2%
Software 6.0% 5.5%
Energy Equipment & Services 5.2% 4.2%
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
Domestic Common Stocks and Futures 82.5% 88.6%
Foreign Common Stocks(1) 16.1% 10.8%
TOTAL COMMON STOCKS 98.6% 99.4%
Cash and Equivalents(2) 1.4% 0.6%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Account Expenses Paid Annualized
Account Value Value During Period* Expense
1/1/08 6/30/08 1/1/08 - 6/30/08 Ratio*
Actual $1,000 $927.90 $4.79 1.00%
Hypothetical $1,000 $1,019.89 $5.02 1.00%
* Expenses are equal to the fund's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Capital Appreciation
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 97.2%
AEROSPACE & DEFENSE -- 1.4%
43,500 Alliant Techsystems Inc.(1) $ 4,423,080
11,223 BE Aerospace, Inc.(1) 261,384
26,112 Precision Castparts Corp. 2,516,414
-----------
7,200,878
-----------
BIOTECHNOLOGY -- 4.8%
190,700 BioMarin Pharmaceutical Inc.(1) 5,526,486
46,500 Celgene Corp.(1) 2,969,955
478,851 CSL Ltd. ORD 16,388,103
-----------
24,884,544
-----------
CAPITAL MARKETS -- 3.4%
41,200 Affiliated Managers Group Inc.(1) 3,710,472
150,400 Janus Capital Group Inc. 3,981,088
121,700 Raymond James Financial, Inc. 3,211,663
182,000 Waddell & Reed Financial, Inc. Cl A 6,371,820
-----------
17,275,043
-----------
CHEMICALS -- 6.7%
84,900 Celanese Corp., Series A 3,876,534
9,545 CF Industries Holdings, Inc. 1,458,476
12,937 Intrepid Potash, Inc.(1) 850,996
14,800 K+S AG ORD 8,538,995
118,760 Monsanto Co. 15,016,014
29,100 Mosaic Co. (The)(1) 4,210,770
-----------
33,951,785
-----------
COMMERCIAL BANKS -- 0.5%
54,600 BB&T Corp. 1,243,242
81,500 Marshall & Ilsley Corp. 1,249,395
-----------
2,492,637
-----------
COMMERCIAL SERVICES & SUPPLIES -- 1.0%
58,000 Copart, Inc.(1) 2,483,560
41,200 FTI Consulting, Inc.(1) 2,820,552
-----------
5,304,112
-----------
COMMUNICATIONS EQUIPMENT -- 1.3%
57,700 Research In Motion Ltd.(1) 6,745,130
-----------
COMPUTERS & PERIPHERALS -- 2.1%
50,443 Apple Inc.(1) 8,446,176
150,600 QLogic Corp.(1) 2,197,254
-----------
10,643,430
-----------
CONSTRUCTION & ENGINEERING -- 3.8%
55,284 Foster Wheeler Ltd.(1) 4,044,025
145,600 KBR, INC. 5,082,896
Shares Value
126,296 Quanta Services, Inc.(1) $ 4,201,868
93,700 Shaw Group Inc. (The)(1) 5,789,723
-----------
19,118,512
-----------
CONTAINERS & PACKAGING -- 4.0%
192,500 Crown Holdings Inc.(1) 5,003,075
372,554 Owens-Illinois Inc.(1) 15,531,776
-----------
20,534,851
-----------
DISTRIBUTORS -- 1.9%
85,488 Central European Distribution Corp.(1) 6,338,935
188,622 LKQ Corp.(1) 3,408,400
-----------
9,747,335
-----------
DIVERSIFIED CONSUMER SERVICES -- 1.2%
63,766 DeVry Inc. 3,419,133
11,800 Strayer Education, Inc. 2,467,026
-----------
5,886,159
-----------
ELECTRICAL EQUIPMENT -- 3.4%
20,961 American Superconductor Corp.(1) 751,452
32,154 Energy Conversion Devices Inc.(1) 2,367,821
14,776 First Solar Inc.(1) 4,031,188
180,200 JA Solar Holdings Co., Ltd. ADR(1) 3,036,370
53,200 Vestas Wind Systems AS ORD(1) 6,966,218
-----------
17,153,049
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.0%
89,399 Dolby Laboratories Inc. Cl A(1) 3,602,780
32,200 FLIR Systems, Inc.(1) 1,306,354
-----------
4,909,134
-----------
ENERGY EQUIPMENT & SERVICES -- 5.2%
33,100 Cameron International Corp.(1) 1,832,085
19,816 Dresser-Rand Group Inc.(1) 774,806
251,100 Grey Wolf Inc.(1) 2,267,433
132,996 Hercules Offshore Inc.(1) 5,056,508
120,300 Patterson-UTI Energy Inc. 4,335,612
97,700 Seadrill Ltd. ORD 2,990,307
189,600 Weatherford International Ltd.(1) 9,402,263
-----------
26,659,014
-----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.6%
9,000 Intuitive Surgical Inc.(1) 2,424,600
112,000 Varian Medical Systems, Inc.(1) 5,807,200
-----------
8,231,800
-----------
- ------
8
VP Capital Appreciation
Shares Value
HEALTH CARE PROVIDERS & SERVICES -- 2.7%
146,500 Express Scripts, Inc.(1) $ 9,188,480
92,900 Medco Health Solutions Inc.(1) 4,384,880
-----------
13,573,360
-----------
HOTELS, RESTAURANTS & LEISURE -- 2.0%
59,030 Bally Technologies, Inc.(1) 1,995,214
80,200 Panera Bread Co. Cl A(1) 3,710,052
151,000 WMS Industries Inc.(1) 4,495,270
-----------
10,200,536
-----------
INDUSTRIAL CONGLOMERATES -- 1.8%
103,460 McDermott International, Inc.(1) 6,403,139
23,500 Walter Industries Inc. 2,556,095
-----------
8,959,234
-----------
INTERNET & CATALOG RETAIL -- 0.9%
40,771 priceline.com Inc.(1) 4,707,420
-----------
INTERNET SOFTWARE & SERVICES -- 0.8%
43,100 Equinix Inc.(1) 3,845,382
-----------
IT SERVICES -- 2.2%
60,500 Global Payments Inc. 2,819,300
31,300 MasterCard Inc. Cl A 8,310,776
-----------
11,130,076
-----------
LIFE SCIENCES TOOLS & SERVICES -- 1.9%
29,850 Covance Inc.(1) 2,567,697
119,100 Invitrogen Corp.(1) 4,675,866
44,200 Thermo Fisher Scientific Inc.(1) 2,463,266
-----------
9,706,829
-----------
MACHINERY -- 4.4%
38,600 Cummins Inc. 2,529,072
118,694 Flowserve Corp. 16,225,470
50,300 Joy Global Inc. 3,814,249
-----------
22,568,791
-----------
MEDIA -- 0.1%
14,336 Liberty Global, Inc. Series C(1) 435,241
-----------
METALS & MINING -- 1.1%
40,200 Agnico-Eagle Mines Ltd. 2,989,674
13,700 United States Steel Corp. 2,531,486
-----------
5,521,160
-----------
MULTILINE RETAIL -- 1.3%
121,000 Big Lots, Inc.(1) 3,780,040
78,800 Dollar Tree, Inc.(1) 2,575,972
-----------
6,356,012
-----------
OIL, GAS & CONSUMABLE FUELS -- 6.9%
39,600 Alpha Natural Resources, Inc.(1) 4,129,884
73,219 Arena Resources Inc.(1) 3,867,428
74,000 BPZ Resources, Inc.(1) 2,175,600
Shares Value
37,700 Continental Resources, Inc.(1) $ 2,613,364
29,200 Peabody Energy Corp. 2,571,060
278,169 Petrohawk Energy Corp.(1) 12,882,006
44,900 St. Mary Land & Exploration Co. 2,902,336
36,421 Whiting Petroleum Corp.(1) 3,863,540
-----------
35,005,218
-----------
PERSONAL PRODUCTS -- 0.6%
79,900 Avon Products, Inc. 2,877,998
-----------
ROAD & RAIL -- 3.0%
73,400 Arkansas Best Corp. 2,689,376
78,500 CSX Corp. 4,930,585
94,400 Norfolk Southern Corp. 5,916,048
106,816 YRC Worldwide Inc.(1) 1,588,354
-----------
15,124,363
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 6.9%
61,400 Intersil Corp. Cl A 1,493,248
50,200 Linear Technology Corp. 1,635,014
446,700 Marvell Technology Group Ltd.(1) 7,888,722
161,585 MEMC Electronic Materials Inc.(1) 9,943,941
43,900 Microchip Technology Inc. 1,340,706
325,800 ON Semiconductor Corp.(1) 2,987,586
162,600 Semiconductor HOLDRs Trust 4,821,090
69,699 Varian Semiconductor Equipment Associates, Inc.(1) 2,426,919
90,300 Xilinx, Inc. 2,280,075
-----------
34,817,301
-----------
SOFTWARE -- 6.0%
232,902 Activision, Inc.(1) 7,934,971
78,500 McAfee Inc.(1) 2,671,355
24,200 Nintendo Co., Ltd. ORD 13,671,413
72,900 Ubisoft Entertainment SA ORD(1) 6,399,186
-----------
30,676,925
-----------
SPECIALTY RETAIL -- 5.1%
105,200 Children's Place Retail Stores, Inc. (The)(1) 3,797,720
152,522 GameStop Corp. Cl A(1) 6,161,889
91,400 Guess?, Inc. 3,422,930
164,800 Ross Stores, Inc. 5,853,696
220,300 Urban Outfitters Inc.(1) 6,871,157
-----------
26,107,392
-----------
TEXTILES, APPAREL & LUXURY GOODS -- 2.6%
52,500 Coach Inc.(1) 1,516,200
13,500 Phillips-Van Heusen Corp. 494,370
- ------
9
VP Capital Appreciation
Shares Value
89,100 Polo Ralph Lauren Corp. $ 5,593,698
129,200 Warnaco Group Inc. (The)(1) 5,693,844
-----------
13,298,112
-----------
THRIFTS & MORTGAGE FINANCE -- 0.6%
189,300 Hudson City Bancorp, Inc. 3,157,524
-----------
WIRELESS TELECOMMUNICATION SERVICES -- 3.0%
141,900 MetroPCS Communications, Inc.(1) 2,513,049
23,000 Millicom International Cellular SA 2,380,500
216,000 NII Holdings, Inc.(1) 10,257,840
-----------
15,151,389
-----------
TOTAL COMMON STOCKS
(Cost $394,298,563) 493,957,676
-----------
Temporary Cash Investments --
Segregated for Futures Contracts -- 1.4%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $7,286,589), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery value $7,142,337)
(Cost $7,142,000) 7,142,000
-----------
Value
Temporary Cash Investments - 2.7%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $13,832,481), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery value $13,558,640)
(Cost $13,558,000) $ 13,558,000
------------
TOTAL INVESTMENT SECURITIES -- 101.3%
(Cost $414,998,563) 514,657,676
------------
OTHER ASSETS & LIABILITIES -- (1.3)% (6,792,137)
------------
TOTAL NET ASSETS -- 100.0% $507,865,539
============
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
15,303,599 AUD for USD 7/31/08 $14,608,367 $ (20,012)
30,738,960 DKK for USD 7/31/08 6,481,039 (3,282)
8,441,953 Euro for USD 7/31/08 13,276,283 (12,075)
1,194,051,907 JPY for USD 7/31/08 11,280,644 (125,197)
13,453,290 NOK for USD 7/31/08 2,635,298 15,934
----------- -----------
$48,281,631 $(144,632)
=========== ===========
(Value on Settlement Date $48,136,999)
Futures Contracts
Underlying
Expiration Face Amount Unrealized
Contracts Purchased Date at Value Gain (Loss)
87 S&P MidCap 400 E-Mini Futures September 2008 $7,141,830 $(222,934)
========== ==========
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
DKK = Danish Krone
HOLDRs = Holding Company Depositary Receipts
JPY = Japanese Yen
NOK = Norwegian Krona
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $414,998,563) $514,657,676
Receivable for investments sold 8,159,758
Receivable for forward foreign currency exchange contracts 15,934
Dividends and interest receivable 119,009
------------
522,952,377
------------
LIABILITIES
Disbursements in excess of demand deposit cash 583,010
Payable for investments purchased 13,893,985
Payable for variation margin on future contracts 18,270
Payable for forward foreign currency exchange contracts 160,566
Accrued management fees 431,007
------------
15,086,838
------------
NET ASSETS $507,865,539
============
CLASS I CAPITAL SHARES, $0.01 PAR VALUE
Authorized 150,000,000
============
Outstanding 37,096,106
============
NET ASSET VALUE PER SHARE $13.69
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $379,405,735
Accumulated net investment loss (1,057,673)
Undistributed net realized gain on investment and foreign currency
transactions 30,225,557
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 99,291,920
------------
$507,865,539
============
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $37,822) $ 1,180,266
Interest 57,780
1,238,046
-----------
EXPENSES:
Management fees 2,530,498
Directors' fees and expenses 5,480
Other expenses 6,314
-----------
2,542,292
-----------
NET INVESTMENT INCOME (LOSS) (1,304,246)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 34,527,270
Foreign currency transactions (3,138,853)
-----------
31,388,417
-----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (76,609,960)
Translation of assets and liabilities in foreign currencies 162,185
-----------
(76,447,775)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) (45,059,358)
-----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(46,363,604)
=============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ (1,304,246) $ (2,501,574)
Net realized gain (loss) 31,388,417 84,044,847
Change in net unrealized appreciation
(depreciation) (76,447,775) 89,400,781
-------------- -------------
Net increase (decrease) in net assets resulting
from operations (46,363,604) 170,944,054
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains (36,274,099) --
-------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 26,958,873 159,643,044
Proceeds from reinvestment of distributions 36,274,099 --
Payments for shares redeemed (72,360,991) (70,840,950)
-------------- -------------
Net increase (decrease) in net assets from
capital share transactions (9,128,019) 88,802,094
-------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (91,765,722) 259,746,148
NET ASSETS
Beginning of period 599,631,261 339,885,113
-------------- -------------
End of period $507,865,539 $599,631,261
============== =============
Accumulated undistributed net investment income
(loss) $(1,057,673) $246,573
============== =============
TRANSACTIONS IN SHARES OF THE FUND
Sold 1,924,394 11,744,940
Issued in reinvestment of distributions 2,934,798 --
Redeemed (5,275,714) (5,257,288)
-------------- -------------
NET INCREASE (DECREASE) IN SHARES OF THE FUND (416,522) 6,487,652
============== =============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Capital Appreciation Fund (the
fund) is one fund in a series issued by the corporation. The fund is
diversified under the 1940 Act. The fund's investment objective is to seek
capital growth. The fund pursues its investment objective by investing
primarily in common stocks of medium-sized and smaller companies that
management believes will increase in value over time. The following is a
summary of the fund's significant accounting policies.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes. Certain countries impose taxes on realized gains
on the sale of securities registered in their country. The fund records the
foreign tax expense, if any, on an accrual basis. The realized and unrealized
tax provision reduces the net realized gain (loss) on investment transactions
and net unrealized appreciation (depreciation) on investments, respectively.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Distributions received on securities that
represent a return of capital or capital gain are recorded as a reduction of
cost of investments and/or as a realized gain. The fund estimates the
components of distributions received that may be considered nontaxable
distributions or capital gain distributions for income tax purposes. Interest
income is recorded on the accrual basis and includes accretion of discounts
and amortization of premiums.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks
of entering into futures contracts is the possibility that the change in value
of the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage
of the contract value (initial margin). Subsequent payments (variation margin)
are made or received daily, in cash, by the fund. The variation margin is
equal to the daily change in the contract value and is recorded as unrealized
gains and losses. The fund recognizes a realized gain or loss when the
contract is closed or expires. Net realized and unrealized gains or losses
occurring during the holding period of futures contracts are a component of
realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For
assets and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
- ------
14
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose
taxes on the contract amount of purchases and sales of foreign currency
contracts in their currency. The fund records the foreign tax expense, if any,
as a reduction to the net realized gain (loss) on foreign currency
transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. Additionally, non-U.S. tax returns filed by the fund
due to investments in certain foreign securities remain subject to examination
by the relevant taxing authority for 7 years from the date of filing. At this
time, management has not identified any uncertain tax positions for which it
is reasonably possible that the total amounts of unrecognized tax benefits
will significantly change in the next twelve months. Accordingly, no provision
has been made for federal or state income taxes. Interest and penalties
associated with any federal or state income tax obligations, if any, are
recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
- ------
15
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the
fee). The Agreement provides that all expenses of the fund, except brokerage
commissions, taxes, interest, fees and expenses of those directors who are not
considered "interested persons" as defined in the 1940 Act (including counsel
fees) and extraordinary expenses, will be paid by ACIM. The fee is computed
and accrued daily based on the daily net assets of the fund and paid monthly
in arrears. For funds with a stepped fee schedule, the rate of the fee is
determined by applying a fee rate calculation formula. This formula takes into
account all of the investment advisor's assets under management in the fund's
investment strategy (strategy assets) to calculate the appropriate fee rate
for the fund. The strategy assets include the fund's assets and the assets of
other clients of the investment advisor that are not in the American Century
Investments family of funds, but that have the same investment team and
investment strategy. The annual management fee schedule for the fund ranges
from 0.90% to 1.00%. The effective annual management fee for the fund for the
six months ended June 30, 2008 was 1.00%.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, American Century
Investment Services, Inc., and the corporation's transfer agent, American
Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. JPMorgan Chase Bank is a custodian of the fund and a wholly
owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $395,383,596 and
$455,837,977, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $416,051,155
=============
Gross tax appreciation of investments $110,375,718
Gross tax depreciation of investments (11,769,197)
-------------
Net tax appreciation (depreciation) of investments $98,606,521
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
4. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
- ------
16
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Unrealized Gain
Value of (Loss) on Other
Investment Financial
Valuation Inputs Securities Instruments*
Level 1 -- Quoted Prices $439,003,454 $(222,934)
Level 2 -- Other Significant
Observable Inputs 75,654,222 (144,632)
Level 3 -- Significant Unobservable
Inputs -- --
------------ ------------
$514,657,676 $(367,566)
============ ============
*Includes forward foreign currency exchange contracts and futures contracts.
5. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
6. RISK FACTORS
The fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. There are certain
risks involved in investing in foreign securities. These risks include those
resulting from future adverse political, social, and economic developments,
fluctuations in currency exchange rates, the possible imposition of exchange
controls, and other foreign laws or restrictions. Investing in emerging
markets may accentuate these risks.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
17
FINANCIAL HIGHLIGHTS
VP Capital Appreciation
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning
of Period $15.98 $10.96 $9.35 $7.66 $7.12 $5.91
------- ------- ------- ------- ------- -------
Income From
Investment
Operations
Net
Investment
Income
(Loss) (0.04) (0.07) (0.04) (0.04) (0.04) (0.04)
Net
Realized
and
Unrealized
Gain (Loss) (1.22) 5.09 1.65 1.73 0.58 1.25
------- ------- ------- ------- ------- -------
Total From
Investment
Operations (1.26) 5.02 1.61 1.69 0.54 1.21
------- ------- ------- ------- ------- -------
Distributions
From Net
Realized
Gains (1.03) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net Asset
Value, End
of Period $13.69 $15.98 $10.96 $9.35 $7.66 $7.12
======= ======= ======= ======= ======= =======
TOTAL
RETURN(2) (7.21)% 45.80% 17.22% 22.06% 7.58% 20.47%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.00%(3) 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets (0.51)%(3) (0.54)% (0.37)% (0.46)% (0.57)% (0.58)%
Portfolio
Turnover
Rate 78% 138% 218% 223% 262% 150%
Net Assets,
End of
Period (in
thousands) $507,866 $599,631 $339,885 $331,362 $264,652 $285,394
(1) Six months ended June 30, 2008 (unaudited).
(2) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized.
(3) Annualized.
See Notes to Financial Statements.
- ------
18
APPROVAL OF MANAGEMENT AGREEMENT
VP Capital Appreciation
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Capital Appreciation Fund (the
"fund") and the services provided to the fund under the management agreement.
The information considered and the discussions held at the meetings included,
but were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of
- ------
19
the fund, the Directors did not identify any single factor as being
all-important or controlling, and each Director may have attributed different
levels of importance to different factors. In deciding to renew the management
agreement under the terms ultimately determined by the board to be
appropriate, the Directors' decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the
- ------
20
advisor. If performance concerns are identified, the Directors discuss with
the advisor the reasons for such results (e.g., market conditions, security
selection) and any efforts being undertaken to improve performance. The fund's
performance for both the one- and three-year periods was above the median for
its peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative,
- ------
21
compliance, recordkeeping, marketing and shareholder services, or arranging
and supervising third parties to provide such services. By contrast, most
other funds are charged a variety of fees, including an investment advisory
fee, a transfer agency fee, an administrative fee, distribution charges and
other expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was slightly above the median of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the fund to the advisor was reasonable in light of the services provided to
the fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
22
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
23
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
- ------
24
[back cover]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
1-800-345-8765
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . .
1-800-345-6488
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . .
1-800-634-4113
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . .
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61145
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP INCOME & GROWTH FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP INCOME & GROWTH
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Five Largest Overweights . . . . . . . . . . . . . . . . . . . . . . 6
Five Largest Underweights. . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 12
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 14
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 15
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 20
OTHER INFORMATION
Approval of Management Agreement for VP Income & Growth . . . . . . . 23
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 27
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 28
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Income & Growth
Total Returns as of June 30, 2008
Average Annual Returns
Since Inception
6 months(1) 1 year 5 years 10 years Inception Date
CLASS I -11.92% -18.39% 7.06% 2.87% 4.98% 10/30/97
S&P 500
INDEX(2) -11.91% -13.12% 7.58% 2.88% 5.01% --
Class II -11.93% -18.59% 6.83% -- 4.20% 5/1/02
Class III -11.92% -18.39% 7.06% -- 6.30% 6/26/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
3
VP Income & Growth
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1998
One-Year Returns Over 10 Years
Periods ended June 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Class I 18.54% 3.68% -10.84% -14.54% 0.71% 21.02% 8.29% 7.12% 22.79% -18.39%
S&P 500
Index 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59% -13.12%
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
4
PORTFOLIO COMMENTARY
VP Income & Growth
Portfolio Managers: John Schniedwind, Kurt Borgwardt, Lynette Pang, and Zili
Zhang
PERFORMANCE SUMMARY
VP Income & Growth returned -11.92%* in the first half of 2008, nearly
matching the -11.91% return of its benchmark, the S&P 500 Index.
The portfolio's double-digit decline during the six-month period resulted from
negative returns in eight of ten market sectors, most notably financials and
health care. As with the broader stock market, just two sectors contributed
positively to performance during the period -- materials and energy.
Despite the difficult market environment, VP Income & Growth kept pace with
its benchmark in the first half of the year. The portfolio's slight tilt
toward value was a drag on performance as growth stocks outpaced value shares.
However, this headwind was offset by VP Income & Growth's smaller market
capitalization relative to the S&P 500, which contributed favorably to results
as small- and mid-cap issues outperformed.
INFORMATION TECHNOLOGY ADDED VALUE
Stock selection was also a neutral factor for the fund relative to the S&P 500
- -- security selection added value in five market sectors and detracted from
results in the other five sectors. Stock selection was most successful in the
information technology sector, where an overweight position in IT services
providers and an underweight position in internet software and services
companies contributed favorably to results.
The best contributors in this sector included consulting and IT services firms
Accenture and International Business Machines (IBM), two of the largest
overweights in the portfolio during the period. Both Accenture and IBM, which
help other companies lower costs and manage their technology infrastructure,
reported solid revenue growth, better-than-expected earnings, and higher
profit guidance for 2008.
MATERIALS, FINANCIALS OUTPERFORMED
The portfolio's materials and financials holdings also outperformed their
counterparts in the index. Virtually all of the outperformance in the
materials sector was driven by an overweight position in metals and mining
stocks. The top contributor was mining company Freeport-McMoRan Copper & Gold,
which benefited from strong industrial demand for metals and rising gold and
copper prices.
Top Ten Holdings as of June 30, 2008
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
Exxon Mobil Corp. 5.4% 5.3%
Chevron Corp. 3.1% 2.8%
International Business Machines Corp. 2.7% 2.4%
ConocoPhillips 2.6% 2.4%
Pfizer Inc. 2.2% 2.5%
Verizon Communications Inc. 2.1% 2.2%
JPMorgan Chase & Co. 2.0% 2.3%
Occidental Petroleum Corp. 2.0% 1.6%
AT&T Inc. 2.0% 1.5%
Hewlett-Packard Co. 1.9% 2.3%
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Income & Growth
In the weak financials sector, the key to outperformance was avoiding or
minimizing our exposure to the worst performers among insurers and commercial
banks. The best example was insurer American International Group (AIG), which
was eliminated from the portfolio in April. AIG plunged in May and June as the
company faced an SEC investigation, reported the largest quarterly loss in its
history, and dismissed its CEO.
CONSUMER STAPLES AND ENERGY DETRACTED
On the downside, stock selection in the consumer staples and energy sectors
detracted the most from performance compared with the S&P 500. An underweight
position in food and staples retailers weighed on results in the consumer
staples sector. In particular, the portfolio's underweight in discount
retailer Wal-Mart was detrimental to performance as increased demand for
discounted goods in a slowing economic environment boosted the stock.
In the energy sector, an underweight in energy services providers and stock
choices among energy producers hindered results. The weakest performer was oil
refiner Valero Energy, which fell sharply as surging energy prices and
declining retail demand for fuel squeezed the company's profit margins.
The biggest individual detractor in the portfolio was health care provider
Humana. The company lowered its earnings forecast for 2008, citing
higher-than-expected costs in its Medicare prescription drug program.
A LOOK AHEAD
The factors contributing to the stock market's first-half swoon show few signs
of abating as we move into the last six months of the year. The economy
continues to wrestle with further deterioration in the housing and mortgage
markets, a rising unemployment rate, a struggling financial sector, and the
highest inflation rate in 17 years. The Federal Reserve is caught between a
rock and a hard place as it tries to strike a balance between stimulating
economic activity and keeping inflation from getting out of control.
In this environment, we remain focused on our disciplined, balanced investment
approach, which we believe will continue to produce favorable results over the
long term.
Five Largest Overweights as of June 30, 2008
% of
portfolio's % of
stocks S&P 500 Index
Occidental Petroleum Corp. 2.04% 0.66%
ConocoPhillips 2.62% 1.30%
McDonald's Corp. 1.89% 0.57%
Exxon Mobil Corp. 5.47% 4.17%
Chevron Corp. 3.14% 1.84%
Five Largest Underweights as of June 30, 2008
% of
portfolio's % of
stocks S&P 500 Index
Apple Inc. 0.14% 1.32%
Schlumberger Ltd. -- 1.15%
Google Inc. Cl A -- 1.10%
Cisco Systems Inc. 0.22% 1.23%
General Electric Co. 1.38% 2.38%
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $880.80 $3.27 0.70%
Class II $1,000 $880.70 $4.44 0.95%
Class III $1,000 $880.80 $3.27 0.70%
HYPOTHETICAL
Class I $1,000 $1,021.38 $3.52 0.70%
Class II $1,000 $1,020.14 $4.77 0.95%
Class III $1,000 $1,021.38 $3.52 0.70%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Income & Growth
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 99.5%
AEROSPACE & DEFENSE -- 4.2%
87,471 Boeing Co. $ 5,748,593
3,304 General Dynamics Corp. 278,197
6,260 Honeywell International Inc. 314,753
47,585 Lockheed Martin Corp. 4,694,736
79,485 Northrop Grumman Corp. 5,317,547
------------
16,353,826
------------
AUTO COMPONENTS -- 0.9%
6,128 Johnson Controls, Inc. 175,751
14,765 Lear Corp.(1) 209,368
50,203 Magna International Inc. Cl A 2,974,026
9,424 TRW Automotive Holdings Corp.(1) 174,061
------------
3,533,206
------------
BEVERAGES -- 1.1%
5,753 Coca-Cola Co. (The) 299,041
67,078 Coca-Cola Enterprises Inc. 1,160,449
30,549 Molson Coors Brewing Co., Cl B 1,659,727
28,404 Pepsi Bottling Group Inc. 793,040
4,027 PepsiCo, Inc. 256,077
------------
4,168,334
------------
BIOTECHNOLOGY -- 2.0%
145,111 Amgen Inc.(1) 6,843,435
17,722 Cephalon, Inc.(1) 1,181,880
------------
8,025,315
------------
CAPITAL MARKETS -- 4.2%
32,199 Bank of New York Mellon Corp. (The) 1,218,088
41,984 Charles Schwab Corp. (The) 862,351
37,102 Goldman Sachs Group, Inc. (The) 6,489,140
18,233 Lehman Brothers Holdings Inc. 361,196
34,032 Merrill Lynch & Co., Inc. 1,079,155
85,762 Morgan Stanley 3,093,435
53,112 State Street Corp. 3,398,637
------------
16,502,002
------------
CHEMICALS -- 2.0%
4,025 CF Industries Holdings, Inc. 615,020
117,203 du Pont (E.I.) de Nemours & Co. 5,026,836
66,339 Methanex Corp. 1,858,819
5,337 Terra Industries Inc. 263,381
------------
7,764,056
------------
Shares Value
COMMERCIAL BANKS -- 1.5%
3,250 Cullen/Frost Bankers, Inc. $ 162,013
14,470 International Bancshares Corp. 309,224
13,471 Regions Financial Corp. 146,969
37,562 Royal Bank of Canada 1,677,894
103,253 U.S. Bancorp 2,879,725
29,854 Wells Fargo & Co. 709,033
------------
5,884,858
------------
COMMERCIAL SERVICES & SUPPLIES -- 0.6%
5,190 Allied Waste Industries Inc.(1) 65,498
71,427 R.R. Donnelley & Sons Co. 2,120,667
------------
2,186,165
------------
COMMUNICATIONS EQUIPMENT -- 0.2%
36,911 Cisco Systems Inc.(1) 858,550
1,147 Nortel Networks Corp.(1) 9,428
------------
867,978
------------
COMPUTERS & PERIPHERALS -- 4.6%
3,216 Apple Inc.(1) 538,487
28,294 EMC Corp.(1) 415,639
170,286 Hewlett-Packard Co. 7,528,345
56,947 Lexmark International, Inc. Cl A(1) 1,903,738
142,303 Seagate Technology 2,722,256
15,027 Sun Microsystems, Inc.(1) 163,494
134,744 Western Digital Corp.(1) 4,652,710
------------
17,924,669
------------
CONSTRUCTION & ENGINEERING -- 0.5%
40,482 EMCOR Group Inc.(1) 1,154,952
2,647 Fluor Corp. 492,554
1,116 Jacobs Engineering Group Inc.(1) 90,061
7,582 Perini Corp.(1) 250,585
------------
1,988,152
------------
CONSUMER FINANCE -- 0.8%
51,626 Capital One Financial Corp. 1,962,304
91,730 Discover Financial Services 1,208,084
------------
3,170,388
------------
DIVERSIFIED FINANCIAL SERVICES -- 3.7%
176,877 Bank of America Corp. 4,222,054
145,870 Citigroup Inc. 2,444,781
232,074 JPMorgan Chase & Co. 7,962,459
------------
14,629,294
------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.4%
232,439 AT&T Inc. 7,830,870
1,095 CenturyTel Inc. 38,971
- ------
8
VP Income & Growth
Shares Value
6,473 Embarq Corp. $ 305,979
232,015 Qwest Communications International Inc.(2) 911,819
234,377 Verizon Communications Inc. 8,296,945
------------
17,384,584
------------
ELECTRIC UTILITIES -- 2.9%
8,216 Duke Energy Corp. 142,794
86,850 Edison International 4,462,354
4,236 Entergy Corp. 510,353
17,938 Exelon Corp. 1,613,702
54,868 FPL Group, Inc. 3,598,243
3,889 PPL Corp. 203,278
19,753 Progress Energy Inc. 826,268
------------
11,356,992
------------
ELECTRICAL EQUIPMENT -- 0.2%
17,650 Emerson Electric Co. 872,793
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.0%
117,782 Celestica Inc.(1) 992,902
78,387 Tyco Electronics Ltd. 2,807,823
------------
3,800,725
------------
ENERGY EQUIPMENT & SERVICES -- 1.0%
5,467 ENSCO International Inc. 441,406
6,253 Noble Corp. 406,195
5,074 Oil States International, Inc.(1) 321,895
13,916 Patterson-UTI Energy Inc. 501,533
4,942 Smith International, Inc. 410,878
10,954 Transocean Inc.(1) 1,669,279
2,010 Willbros Group, Inc.(1)(2) 88,058
------------
3,839,244
------------
FOOD & STAPLES RETAILING -- 1.0%
3,560 BJ's Wholesale Club Inc.(1) 137,772
11,645 Costco Wholesale Corp. 816,780
15,595 Walgreen Co. 506,993
40,973 Wal-Mart Stores, Inc. 2,302,683
------------
3,764,228
------------
FOOD PRODUCTS -- 1.4%
83,452 General Mills, Inc. 5,071,378
18,498 Tyson Foods, Inc. Cl A 276,360
------------
5,347,738
------------
GAS UTILITIES -- 0.1%
8,066 Nicor Inc. 343,531
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.1%
38,012 Baxter International Inc. 2,430,487
65,071 Becton, Dickinson & Co. 5,290,273
26,915 Boston Scientific Corp.(1) 330,785
------------
8,051,545
------------
Shares Value
HEALTH CARE PROVIDERS & SERVICES -- 0.6%
67,784 AMERIGROUP Corp.(1) $ 1,409,907
34,773 Apria Healthcare Group Inc.(1) 674,248
5,737 Express Scripts, Inc.(1) 359,825
------------
2,443,980
------------
HOTELS, RESTAURANTS & LEISURE -- 2.1%
22,536 Burger King Holdings, Inc. 603,739
130,767 McDonald's Corp. 7,351,721
9,843 WMS Industries Inc.(1) 293,026
2,629 Yum! Brands, Inc. 92,252
------------
8,340,738
------------
HOUSEHOLD DURABLES -- 1.5%
14,627 Blyth, Inc. 175,963
3,749 NVR, Inc.(1) 1,874,800
15,616 Pulte Homes Inc. 150,382
6,402 Toll Brothers Inc.(1) 119,909
103,992 Tupperware Brands Corp. 3,558,607
------------
5,879,661
------------
HOUSEHOLD PRODUCTS -- 2.3%
1,829 Clorox Co. 95,474
97,051 Kimberly-Clark Corp. 5,801,709
52,116 Procter & Gamble Co. (The) 3,169,174
------------
9,066,357
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.3%
62,441 Reliant Energy, Inc.(1) 1,328,120
------------
INDUSTRIAL CONGLOMERATES -- 1.5%
202,143 General Electric Co. 5,395,197
5,064 Walter Industries Inc. 550,811
------------
5,946,008
------------
INSURANCE -- 3.6%
82,068 Ace, Ltd. 4,521,126
33,027 Arch Capital Group Ltd.(1) 2,190,351
90,103 Aspen Insurance Holdings Ltd. 2,132,738
28,817 Axis Capital Holdings Ltd. 859,035
58,210 Endurance Specialty Holdings Ltd. 1,792,286
13,783 Max Capital Group Ltd. 293,991
11,364 PartnerRe Ltd. 785,593
10,946 Travelers Companies, Inc. (The) 475,056
44,948 Unum Group 919,187
------------
13,969,363
------------
INTERNET SOFTWARE & SERVICES -- 0.2%
20,151 Open Text Corp.(1)(2) 646,847
------------
- ------
9
VP Income & Growth
Shares Value
IT SERVICES -- 5.5%
121,310 Accenture Ltd. Cl A $ 4,939,743
110,974 Computer Sciences Corp.(1) 5,198,022
89,018 International Business Machines Corp. 10,551,305
2,787 MasterCard Inc. Cl A 740,004
1,632 Visa Inc. Cl A(1) 132,698
------------
21,561,772
------------
LEISURE EQUIPMENT & PRODUCTS -- 1.0%
109,161 Hasbro, Inc. 3,899,231
------------
LIFE SCIENCES TOOLS & SERVICES -- 0.3%
19,310 Invitrogen Corp.(1) 758,110
7,449 Thermo Fisher Scientific Inc.(1) 415,133
------------
1,173,243
------------
MACHINERY -- 1.3%
44,838 Caterpillar Inc. 3,309,941
1,919 Dover Corp. 92,822
24,944 Parker-Hannifin Corp. 1,779,006
------------
5,181,769
------------
MEDIA -- 3.0%
156,442 CBS Corp. Cl B 3,049,055
104,816 Comcast Corp. Cl A 1,988,360
7,280 Regal Entertainment Group Cl A 111,238
206,100 Walt Disney Co. (The) 6,430,320
------------
11,578,973
------------
METALS & MINING -- 2.4%
54,570 Freeport-McMoRan Copper & Gold, Inc. 6,395,058
19,805 Nucor Corp. 1,478,839
15,825 Southern Copper Corp.(2) 1,687,420
------------
9,561,317
------------
MULTI-UTILITIES -- 0.1%
8,697 Public Service Enterprise Group Inc. 399,453
------------
MULTILINE RETAIL -- 0.4%
80,912 Macy's Inc. 1,571,311
------------
OFFICE ELECTRONICS -- 1.3%
374,134 Xerox Corp. 5,073,257
------------
OIL, GAS & CONSUMABLE FUELS -- 17.6%
4,810 Alpha Natural Resources, Inc.(1) 501,635
9,639 Apache Corp. 1,339,821
123,245 Chevron Corp. 12,217,277
108,295 ConocoPhillips 10,221,965
8,248 Devon Energy Corp. 991,080
28,014 EnCana Corp. 2,547,313
Shares Value
242,092 Exxon Mobil Corp. $ 21,335,568
14,922 Frontline Ltd.(2) 1,041,257
8,763 Hess Corp. 1,105,803
2,214 Massey Energy Co. 207,563
3,798 Noble Energy Inc. 381,927
88,366 Occidental Petroleum Corp. 7,940,569
13,525 Stone Energy Corp.(1) 891,433
8,634 Sunoco, Inc. 351,317
82,279 Valero Energy Corp. 3,388,249
66,438 W&T Offshore Inc. 3,887,287
13,202 Williams Companies, Inc. (The) 532,173
------------
68,882,237
------------
PHARMACEUTICALS -- 5.1%
126,321 Bristol-Myers Squibb Co. 2,593,370
45,978 Eli Lilly & Co. 2,122,344
102,494 Johnson & Johnson 6,594,464
492,464 Pfizer Inc. 8,603,346
2,183 Wyeth 104,697
------------
20,018,221
------------
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 0.5%
1,146 Apartment Investment and Management Co. Cl A 39,033
6,641 CBL & Associates Properties, Inc. 151,680
33,590 Hospitality Properties Trust 821,611
3,801 Host Hotels & Resorts Inc. 51,884
44,705 HRPT Properties Trust 302,653
8,366 ProLogis 454,692
3,178 Public Storage Inc. 256,751
------------
2,078,304
------------
ROAD & RAIL -- 1.0%
2,388 Con-way Inc. 112,857
27,078 CSX Corp. 1,700,769
19,896 Norfolk Southern Corp. 1,246,882
557 Ryder System, Inc. 38,366
13,261 Union Pacific Corp. 1,001,206
------------
4,100,080
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.4%
230,652 Amkor Technology Inc.(1) 2,401,087
1,866 ASM International N.V.(2) 55,980
87,962 Intel Corp. 1,889,424
84,946 LSI Corp.(1) 521,568
11,794 Skyworks Solutions, Inc.(1) 116,407
15,711 Xilinx, Inc. 396,703
------------
5,381,169
------------
- ------
10
VP Income & Growth
Shares Value
SOFTWARE -- 2.6%
1,734 CA, Inc. $40,038
217,984 Microsoft Corp. 5,996,740
21,753 Quest Software, Inc.(1) 322,162
207,684 Symantec Corp.(1) 4,018,685
------------
10,377,625
------------
SPECIALTY RETAIL -- 1.5%
8,129 Best Buy Co., Inc. 321,908
197,480 Gap, Inc. (The) 3,291,991
161,355 RadioShack Corp. 1,979,826
16,394 Rent-A-Center Inc.(1) 337,225
------------
5,930,950
------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.1%
3,380 VF Corp. 240,588
------------
THRIFTS & MORTGAGE FINANCE -- 0.2%
14,084 Fannie Mae 274,779
27,047 Hudson City Bancorp, Inc. 451,144
9,000 New York Community Bancorp, Inc. 160,560
------------
886,483
------------
TOBACCO -- 1.6%
155,199 Altria Group Inc. 3,190,891
28,179 Reynolds American Inc. 1,315,114
38,021 Universal Corp. 1,719,310
------------
6,225,315
------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.1%
4,714 American Tower Corp. Cl A(1) 199,167
------------
TOTAL COMMON STOCKS
(Cost $365,411,679) 389,701,162
------------
Value
Temporary Cash Investments -- 0.7%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $2,754,661), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery value $2,700,128)
(Cost $2,700,000) $ 2,700,000
------------
Temporary Cash Investments - Securities Lending Collateral(5) --
1.2%
Repurchase Agreement, Barclays Capital Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 2.50%, dated 6/30/08, due 7/1/08
(Delivery value $1,100,076) 1,100,000
Repurchase Agreement, BNP Paribas Securities Corp.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 2.45%, dated 6/30/08,
due 7/1/08 (Delivery value $1,100,075) 1,100,000
Repurchase Agreement, Deutsche Bank Securities Inc.,
(collateralized by various U.S. Government Agency obligations in
a pooled account at the lending agent), 2.50%, dated 6/30/08,
due 7/1/08 (Delivery value $1,200,083) 1,200,000
Repurchase Agreement, UBS Securities LLC, (collateralized by
various U.S. Government Agency obligations in a pooled account
at the lending agent), 2.65%, dated 6/30/08, due 7/1/08
(Delivery value $1,317,748) 1,317,651
------------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES LENDING COLLATERAL
(Cost $4,717,651) 4,717,651
------------
TOTAL INVESTMENT SECURITIES -- 101.4%
(Cost $372,829,330) 397,118,813
------------
OTHER ASSETS AND LIABILITIES -- (1.4)% (5,424,190)
------------
TOTAL NET ASSETS -- 100.0% $391,694,623
============
Notes to Schedule of Investments
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2008.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $368,111,679) --
including $4,641,920 of securities on loan $392,401,162
Investments made with cash collateral received for securities on
loan, at value (cost of $4,717,651) 4,717,651
-------------
Total investment securities, at value (cost of $372,829,330) 397,118,813
Receivable for investments sold 6,337,627
Dividends and interest receivable 480,004
-------------
403,936,444
-------------
LIABILITIES
Disbursements in excess of demand deposit cash 378,275
Payable for collateral received on securities on loan 4,717,651
Payable for investments purchased 6,896,377
Accrued management fees 245,224
Distribution fees payable 4,294
-------------
12,241,821
-------------
NET ASSETS $391,694,623
=============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $384,921,367
Undistributed net investment income 3,510,244
Accumulated net realized loss on investment transactions (21,026,471)
Net unrealized appreciation on investments 24,289,483
-------------
$391,694,623
=============
CLASS I, $0.01 PAR VALUE
Net assets $365,839,885
Shares outstanding 56,372,169
Net asset value per share $6.49
CLASS II, $0.01 PAR VALUE
Net assets $19,989,598
Shares outstanding 3,082,156
Net asset value per share $6.49
CLASS III, $0.01 PAR VALUE
Net assets $5,865,140
Shares outstanding 903,686
Net asset value per share $6.49
See Notes to Financial Statements.
- ------
12
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $25,770) $ 5,056,957
Interest 25,464
Securities lending, net 54,482
-------------
5,136,903
-------------
EXPENSES:
Management fees 1,585,431
Distribution fees -- Class II 27,450
Directors' fees and expenses 5,242
Other expenses 4,010
-------------
1,622,133
-------------
NET INVESTMENT INCOME (LOSS) 3,514,770
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment transactions (10,619,467)
Change in net unrealized appreciation (depreciation)
on investments (51,268,517)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (61,887,984)
-------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(58,373,214)
=============
See Notes to Financial Statements.
- ------
13
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 3,514,770 $ 8,358,383
Net realized gain (loss) (10,619,467) 47,254,822
Change in net unrealized appreciation
(depreciation) (51,268,517) (50,118,043)
------------- -------------
Net increase (decrease) in net assets resulting
from operations (58,373,214) 5,495,162
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (7,806,192) (11,037,980)
Class II (347,920) (440,604)
Class III (119,914) (179,392)
From net realized gains:
Class I (46,765,885) --
Class II (2,405,270) --
Class III (718,391) --
------------- -------------
Decrease in net assets from distributions (58,163,572) (11,657,976)
------------- -------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from
capital share transactions (5,452,273) (133,427,908)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (121,989,059) (139,590,722)
NET ASSETS
Beginning of period 513,683,682 653,274,404
------------- -------------
End of period $ 391,694,623 $ 513,683,682
============= =============
Undistributed net investment income $3,510,244 $8,269,500
============= =============
See Notes to Financial Statements.
- ------
14
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Income & Growth Fund (the fund) is
one fund in a series issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is to seek capital growth by
investing in common stocks. Income is a secondary objective. The following is
a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II, and Class
III. The share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks
of entering into futures contracts is the possibility that the change in value
of the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage
of the contract value (initial margin). Subsequent payments (variation margin)
are made or received daily, in cash, by the fund. The variation margin is
equal to the daily change in the contract value and is recorded as unrealized
gains and losses. The fund recognizes a realized gain or loss when the
contract is closed or expires. Net realized and unrealized gains or losses
occurring during the holding period of futures contracts are a component of
realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively.
- ------
15
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
The fund has elected to treat $(5,518,177) of net capital losses incurred in
the two-month period ended December 31, 2007, as having been incurred in the
following fiscal year for federal income tax purposes.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee
is retained by the fund and helps cover transaction costs that long-term
investors may bear when a fund sells securities to meet investor redemptions.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
- ------
16
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. For funds
with a stepped fee schedule, the rate of the fee is determined by applying a
fee rate calculation formula. This formula takes into account all of the
investment advisor's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of
the investment advisor that are not in the American Century Investments family
of funds, but that have the same investment team and investment strategy. The
annual management fee schedule for each class of the fund ranges from 0.65% to
0.70% for Class I, Class II and Class III. The effective annual management fee
for each class of the fund for the six months ended June 30, 2008 was 0.70%.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $125,171,742 and
$184,439,130, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $376,732,747
=============
Gross tax appreciation of investments $ 66,987,828
Gross tax depreciation of investments (46,601,762)
------------
Net tax appreciation (depreciation) of investments $ 20,386,066
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
- ------
17
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30, 2008 Year ended December 31, 2007
Shares Amount Shares Amount
CLASS I/
SHARES AUTHORIZED 300,000,000 300,000,000
============== ==============
Sold 1,785,544 $ 13,043,697 5,083,444 $ 44,761,720
Issued in
reinvestment of
distributions 8,120,845 54,572,077 1,329,877 11,037,980
Redeemed (10,449,282) (73,887,232) (20,812,020) (184,652,230)
-------------- -------------- -------------- --------------
(542,893) (6,271,458) (14,398,699) (128,852,530)
-------------- -------------- -------------- --------------
CLASS II/
SHARES AUTHORIZED 50,000,000 50,000,000
============== ==============
Sold 228,773 1,712,406 595,141 5,304,481
Issued in
reinvestment of
distributions 409,701 2,753,190 53,085 440,604
Redeemed (536,884) (3,940,774) (891,140) (7,902,244)
-------------- -------------- -------------- --------------
101,590 524,822 (242,914) (2,157,159)
-------------- -------------- -------------- --------------
CLASS III/
SHARES AUTHORIZED 50,000,000 50,000,000
============== ==============
Sold 128,379 973,471 432,019 3,839,482
Issued in
reinvestment of
distributions 124,748 838,305 21,614 179,392
Redeemed (203,385) (1,517,413)(1) (739,245) (6,437,093)(2)
-------------- -------------- -------------- --------------
49,742 294,363 (285,612) (2,418,219)
-------------- -------------- -------------- --------------
Net increase
(decrease) (391,561) $ (5,452,273) (14,927,225) $(133,427,908)
============== ============== ============== ==============
(1) Net of redemption fees of $1,867.
(2) Net of redemption fees of $8,337.
5. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $4,641,920 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The total market value of all collateral
received, at this date, was $4,813,937. The fund's risks in securities lending
are that the borrower may not provide additional collateral when required or
return the securities when due. If the borrower defaults, receipt of the
collateral by the fund may be delayed or limited.
- ------
18
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities as of June 30, 2008:
Value of
Valuation Inputs Investment Securities
Level 1 -- Quoted Prices $389,701,162
Level 2 -- Other Significant Observable Inputs 7,417,651
Level 3 -- Significant Unobservable Inputs --
--------------
$397,118,813
==============
7. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
8. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
19
FINANCIAL HIGHLIGHTS
VP Income & Growth
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $8.46 $8.63 $7.51 $7.32 $6.57 $5.16
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.06 0.12 0.14 0.13 0.14 0.10
Net Realized
and Unrealized
Gain (Loss) (1.04) (0.13) 1.12 0.20 0.71 1.38
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.98) (0.01) 1.26 0.33 0.85 1.48
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.14) (0.16) (0.14) (0.14) (0.10) (0.07)
From Net
Realized Gains (0.85) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.99) (0.16) (0.14) (0.14) (0.10) (0.07)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $6.49 $8.46 $8.63 $7.51 $7.32 $6.57
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (11.92)% (0.07)% 17.09% 4.63% 12.99% 29.35%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average
Net Assets 0.70%(4) 0.71% 0.70% 0.70% 0.70% 0.70%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.57%(4) 1.39% 1.75% 1.81% 2.08% 1.78%
Portfolio Turnover
Rate 28% 54% 63% 76% 75% 71%
Net Assets,
End of Period (in
thousands) $365,840 $481,304 $615,658 $772,330 $805,904 $826,785
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
20
VP Income & Growth
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $8.44 $8.62 $7.50 $7.30 $6.56 $5.15
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.05 0.10 0.12 0.11 0.13 0.09
Net Realized
and Unrealized
Gain (Loss) (1.03) (0.14) 1.12 0.22 0.69 1.39
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.98) (0.04) 1.24 0.33 0.82 1.48
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.12) (0.14) (0.12) (0.13) (0.08) (0.07)
From Net
Realized Gains (0.85) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.97) (0.14) (0.12) (0.13) (0.08) (0.07)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $6.49 $8.44 $8.62 $7.50 $7.30 $6.56
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (11.93)% (0.43)% 16.81% 4.52% 12.57% 29.19%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average
Net Assets 0.95%(4) 0.96% 0.95% 0.95% 0.95% 0.95%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.32%(4) 1.14% 1.50% 1.56% 1.83% 1.53%
Portfolio Turnover
Rate 28% 54% 63% 76% 75% 71%
Net Assets,
End of Period (in
thousands) $19,990 $25,158 $27,778 $27,857 $25,218 $14,370
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
21
VP Income & Growth
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $8.46 $8.63 $7.51 $7.32 $6.57 $5.16
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.06 0.12 0.13 0.13 0.15 0.11
Net Realized
and Unrealized
Gain (Loss) (1.04) (0.13) 1.13 0.20 0.70 1.37
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.98) (0.01) 1.26 0.33 0.85 1.48
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.14) (0.16) (0.14) (0.14) (0.10) (0.07)
From Net
Realized Gains (0.85) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.99) (0.16) (0.14) (0.14) (0.10) (0.07)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $6.49 $8.46 $8.63 $7.51 $7.32 $6.57
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (11.92)% (0.07)% 17.09% 4.63% 12.99% 29.35%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average
Net Assets 0.70%(4) 0.71% 0.70% 0.70% 0.70% 0.70%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.57%(4) 1.39% 1.75% 1.81% 2.08% 1.75%
Portfolio Turnover
Rate 28% 54% 63% 76% 75% 71%
Net Assets,
End of Period (in
thousands) $5,865 $7,222 $9,838 $5,601 $3,683 $1,669
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
22
APPROVAL OF MANAGEMENT AGREEMENT
VP Income & Growth
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Income & Growth Fund (the "fund")
and the services provided to the fund under the management agreement. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
23
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based
on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund.
- ------
24
The Directors also review detailed performance information during the 15(c)
Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's quarter end performance fell below its benchmark for
both the one- and three-year periods during the past year. The board discussed
the fund's performance with the advisor and was satisfied with the efforts
being undertaken by the advisor. The board will continue to monitor these
efforts and the performance of the fund. More detailed information about the
fund's performance can be found in the Performance and Portfolio Commentary
sections of this report.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
25
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was in the lowest quartile of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the fund to the advisor was reasonable in light of the services provided to
the fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
26
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
27
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure of
U.S. stock market performance.
- ------
28
[back cover]
[american century investments logo and text logo®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61142
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP INTERNATIONAL FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
International Equity Total Returns . . . . . . . . . . . . . . . . . 2
VP INTERNATIONAL
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Investments by Country . . . . . . . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
OTHER INFORMATION
Approval of Management Agreement for VP International . . . . . . . . 23
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 28
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Mark On]
By Mark On, Chief Investment Officer, International Equity
INTERNATIONAL STOCKS RETREAT
Global credit market woes, rising inflationary pressures and slowing economic
growth combined to drag down stocks. Soaring prices for oil and other
commodities added to investors' malaise, while a weak U.S. dollar complicated
outlooks for companies that rely on exports to the United States. This
onslaught of challenges culminated in a severe selloff in June, when losses
for the month approached 10% for most international indices. The disastrous
results in June, combined with poor first-quarter performance, led to sharply
negative six-month returns for developed international and emerging market
stocks.
CREDIT CRUNCH PROMPTS CENTRAL BANK ACTION
Europe couldn't escape the fallout from the U.S. credit crisis. Many of its
large banks such as UBS were major investors and players in the U.S. subprime
credit market. But coordinated efforts between the European Central Bank (ECB)
and the U.S. Federal Reserve to inject liquidity and ease conditions in
short-term money markets limited the risk of a severe global credit crisis.
RATES DROP IN BRITAIN
In Europe, the euro continued to reach record highs versus the U.S. dollar.
Despite increasingly sluggish economic growth, rising inflation caused the ECB
to leave its key interest rate unchanged, with a bias toward raising rates. On
the other hand, the Bank of England responded to slower economic growth by
cutting its key rate by 50 basis points.
Japan's economic growth remained positive, but the government scaled back its
fiscal-year growth forecast, citing rising raw materials prices and turmoil in
the global financial markets as obstacles to economic expansion. Japan's
benchmark interest rate remained steady at 0.5% -- the lowest among the
world's major economies.
VOLATILITY OFFERS OPPORTUNITY
Financial sector problems in the United States and Europe likely will
continue. But in other regions, opportunities exist -- especially in countries
with strong export positions in energy, resources and agriculture. Turbulent
times, even those marked by substantial uncertainties regarding inflation,
present the potential for long-term investment gains.
- ------
2
PERFORMANCE
VP International
Total Returns as of June 30, 2008
Average Annual Returns
10 Since Inception
6 months(1) 1 year 5 years years Inception Date
CLASS I -7.95% -2.52% 15.96% 4.85% 7.83% 5/1/94
MSCI EAFE INDEX -10.96% -10.61% 16.67% 5.83% 6.53%(2) --
MSCI EAFE GROWTH
INDEX -8.14% -4.44% 16.25% 4.11% 5.02%(2) --
Class II -8.01% -2.67% 15.76% -- 7.06% 8/15/01
Class III -7.95% -2.52% 15.96% -- 9.87% 5/2/02
Class IV -8.00% -2.58% -- -- 14.21% 5/3/04
(1) Total returns for periods less than one year are not annualized.
(2) Since 4/30/94, the date nearest Class I's inception for which data are
available.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations. Investing in emerging markets may accentuate these
risks.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
3
VP International
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1998
One-Year Returns Over 10 Years
Periods ended June 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Class I 1.74% 43.62% -29.33% -15.28% -12.51% 21.31% 11.04% 23.48% 29.39% -2.52%
MSCI
EAFE
Index 7.62% 17.16% -23.60% -9.49% -6.46% 32.37% 13.65% 26.56% 27.00% -10.61%
MSCI
EAFE
Growth
Index 5.27% 20.47% -33.30% -9.46% -8.01% 26.42% 11.37% 25.98% 25.29% -4.44%
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations. Investing in emerging markets may accentuate these
risks.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
4
PORTFOLIO COMMENTARY
VP International
Portfolio Managers: Alex Tedder and Raj Gandhi
PERFORMANCE SUMMARY
VP International returned -7.95%* for the six months ended June 30, 2008. The
portfolio's benchmark, the MSCI EAFE Index, returned -10.96%.
The combination of rising inflationary pressures (triggered by soaring oil and
food prices), ongoing global credit-market concerns and slowing economic
growth rates led to a sharp downturn among most international stock markets.
There was little difference between the decline in the developed markets
versus the downturn in the emerging markets, reflecting the widespread slump
in investor sentiment.
Overall, effective asset allocation decisions and favorable stock selection
accounted for the portfolio's outperformance relative to the benchmark.
GERMANY LEADS ALL COUNTRIES
From a country perspective, Germany, Canada (which was not represented in the
benchmark) and Italy made the greatest positive contributions to the
portfolio's relative performance. Within each country, strong stock selection
led to leading results.
On the other hand, our positions in India, Japan and Greece detracted from
relative results. Our holdings in India posted a negative return for the
reporting period, and the benchmark had no exposure to India. An underweight
and stock selection accounted for the lagging results in Japan, while an
overweight was the culprit in Greece.
MATERIALS, ENERGY WERE TOP SECTORS
The portfolio's materials sector made the greatest positive contribution to
relative performance, due to our overweight to the sector and good stock
selection. In particular, our stock picks in the chemicals industry -- along
with an overweight -- generated strong performance. Our position in Germany's
K+S AG, a producer of potash for use in fertilizers, represented the fund's
top contributor for the reporting period. The company's stock benefited from
the extended agriculture boom, greater-than-expected earnings and soaring
demand for potash.
As oil pushed past $140 a barrel and natural gas prices jumped as well, a
number of our energy sector investments contributed positively to the
portfolio's performance. One such holding was Italian oilfield services
company Saipem SpA., which landed several new drilling contracts in Peru,
Venezuela, and Ukraine. The company also announced it won the right to build
the Nord Stream natural gas pipeline between Russia and Germany.
Top Ten Holdings as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
BG Group plc 2.1% 1.8%
Saipem SpA 2.1% 1.5%
Rio Tinto Ltd. 2.0% 1.0%
ENI SpA 2.0% 0.4%
Syngenta AG 1.9% 1.3%
Tesco plc 1.9% 1.4%
Total SA 1.9% 1.5%
CEZ AS 1.8% 1.1%
K+S AG 1.7% 1.0%
Novo Nordisk AS B Shares 1.7% 1.7%
*All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP International
Our health care stocks also were strong contributors to relative performance.
Specifically, overweights to Australia's CSL Ltd., a biotechnology company
specializing in vaccines, and Denmark's Novo Nordisk AS, a pharmaceutical
company specializing in insulin treatments for diabetes, contributed
favorably.
CONSUMER STAPLES LAGGED
The consumer staples sector represented the largest detractor to the
portfolio's relative performance, primarily due to unfavorable stock selection
among beverage companies and food and staples retailers.
The worst-performing individual holding during the six-month period was
financial exchange operator Deutsche Boerse AG of Germany. The company
reported extended declines in trading volumes and contended with expanding
global competitive pressures.
OUTLOOK
VP International invests in companies located throughout the world exhibiting
accelerating earnings and revenue growth. Our analysis indicates the long-term
outlook for large-cap growth companies remains positive. The portfolio has
broad exposure to high-quality growth companies in numerous markets, and
although economic uncertainty and market volatility characterize the current
climate, we believe these companies will deliver solid long-term returns.
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Foreign Common Stocks 99.6% 99.5%
Temporary Cash Investments -- 0.5%
Other Assets and Liabilities(1) 0.4% --(2)
(1) Includes securities lending collateral and other assets and liabilities.
(2) Category is less than 0.05% of total net assets.
Investments by Country as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
United Kingdom 20.5% 13.5%
Japan 13.2% 13.9%
Switzerland 9.6% 10.1%
Germany 8.9% 10.1%
France 7.1% 9.1%
Australia 5.7% 5.2%
Italy 4.6% 3.0%
Denmark 3.6% 3.2%
Spain 3.4% 3.2%
Belgium 2.8% 2.1%
Canada 2.6% 3.5%
Norway 2.0% 1.5%
Other Countries 15.6% 21.1%
Cash and Equivalents(3) 0.4% 0.5%
(3) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $920.50 $5.83 1.22%
Class II $1,000 $919.90 $6.54 1.37%
Class III $1,000 $920.50 $5.83 1.22%
Class IV $1,000 $920.00 $6.54 1.37%
HYPOTHETICAL
Class I $1,000 $1,018.80 $6.12 1.22%
Class II $1,000 $1,018.05 $6.87 1.37%
Class III $1,000 $1,018.80 $6.12 1.22%
Class IV $1,000 $1,018.05 $6.87 1.37%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP International
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 99.6%
AUSTRALIA -- 5.7%
325,759 BHP Billiton Ltd. $ 13,647,024
2,048,319 Boart Longyear Group 4,378,875
335,350 CSL Ltd. 11,476,953
132,160 Rio Tinto Ltd.(1) 17,167,198
69,150 Westpac Banking Corp. 1,325,813
6,990 Woodside Petroleum Ltd. 452,315
------------
48,448,178
------------
BELGIUM -- 2.8%
77,810 KBC Groupe 8,644,053
407,140 SES SA Fiduciary Depositary Receipt 10,324,708
90,020 Umicore 4,452,222
------------
23,420,983
------------
BERMUDA -- 0.7%
239,032 Aquarius Platinum Ltd. 3,838,290
74,280 Seadrill Ltd. 2,273,490
------------
6,111,780
------------
BRAZIL -- 1.2%
470,600 Bolsa de Mercadorias e Futuros -- BM&F SA 4,070,516
316,700 Redecard SA 5,875,394
------------
9,945,910
------------
CANADA -- 2.6%
11,920 Agnico-Eagle Mines Ltd. 886,490
60,050 EnCana Corp. 5,460,347
4,439 Nortel Networks Corp.(2) 36,489
19,725 Potash Corp. of Saskatchewan 4,575,744
77,520 Research In Motion Ltd.(2) 9,062,088
43,110 Shoppers Drug Mart Corp. 2,362,638
------------
22,383,796
------------
CZECH REPUBLIC -- 1.8%
175,970 CEZ AS 15,618,055
------------
DENMARK -- 3.6%
38,150 FLSmidth & Co. AS 4,189,784
216,844 Novo Nordisk AS B Shares(1) 14,197,206
94,460 Vestas Wind Systems AS(2) 12,368,966
------------
30,755,956
------------
FINLAND -- 1.5%
77,480 Fortum Oyj 3,936,970
100,540 Kone Oyj 3,537,775
204,960 Nokia Oyj 5,000,675
------------
12,475,420
------------
Shares Value
FRANCE -- 7.1%
49,530 ALSTOM Co.(1) $ 11,442,417
274,454 AXA SA 8,153,036
31,390 BNP Paribas 2,844,915
38,640 Carrefour SA 2,188,593
79,060 Groupe Danone 5,553,922
19,380 Schneider Electric SA 2,094,350
59,850 Suez SA 4,076,223
186,740 Total SA 15,942,072
46,804 Ubisoft Entertainment SA(2) 4,108,470
97,730 Vivendi Universal SA 3,709,822
------------
60,113,820
------------
GERMANY -- 8.9%
95,730 adidas AG 6,047,959
88,180 BASF SE 6,086,261
73,020 Deutsche Boerse AG 8,245,340
148,123 Fresenius Medical Care AG & Co. KGaA 8,168,132
185,280 GEA Group AG 6,548,766
12,810 Hochtief AG 1,303,638
25,293 K+S AG 14,593,027
75,190 Linde AG 10,575,957
50,135 Q-Cells AG(2) 5,096,571
48,523 SGL Carbon AG(2) 3,407,950
46,410 Siemens AG 5,155,040
------------
75,228,641
------------
GREECE -- 1.9%
84,110 Coca-Cola Hellenic Bottling Co. SA 2,291,933
124,750 Hellenic Telecommunications Organization SA(2) 3,143,900
242,721 National Bank of Greece SA 10,941,708
------------
16,377,541
------------
HONG KONG -- 1.8%
304,500 Hang Seng Bank Ltd. 6,424,174
1,734,000 Li & Fung Ltd. 5,226,140
294,120 Melco PBL Entertainment (Macau) Ltd. ADR(2) 2,741,198
61,000 Sun Hung Kai Properties Ltd. 827,713
------------
15,219,225
------------
INDIA -- 1.3%
269,560 Bharti Airtel Ltd.(2) 4,528,771
92,140 Housing Development Finance Corp. Ltd. 4,217,127
117,300 Tata Consultancy Services Ltd. 2,344,907
------------
11,090,805
------------
- ------
8
VP International
Shares Value
IRELAND -- 0.1%
129,723 Anglo Irish Bank Corp. plc $ 1,215,744
------------
ITALY -- 4.6%
458,230 ENI SpA 17,105,666
169,250 Finmeccanica SpA 4,446,676
377,379 Saipem SpA 17,731,241
------------
39,283,583
------------
JAPAN -- 13.2%
101,700 Canon, Inc.(1) 5,237,027
380 Central Japan Railway Co. 4,193,152
93,100 Daikin Industries Ltd. 4,706,366
37,800 Fanuc Ltd. 3,696,935
34,300 FAST RETAILING CO., LTD. 3,254,343
512,800 iShares MSCI Japan Index Fund 6,399,744
334,000 Isuzu Motors Ltd. 1,609,677
137,000 Japan Steel Works Ltd. (The) 2,668,160
665,000 Kobe Steel Ltd. 1,906,630
182,500 Konami Corp.(1) 6,385,693
295,000 Kuraray Co. Ltd. 3,522,305
610,000 Marubeni Corp. 5,102,990
125,500 Mitsubishi Corp. 4,142,695
201,000 Mitsubishi Electric Corp. 2,170,565
537,000 Mitsui O.S.K. Lines, Ltd. 7,662,746
24,400 Nintendo Co., Ltd. 13,784,401
168,000 Shiseido Co., Ltd. 3,850,231
91,100 Sony Corp. 3,986,645
2,895 Sony Financial Holdings Inc. 11,658,635
450 Sumitomo Mitsui Financial Group Inc. 3,391,021
101,000 Sumitomo Realty & Development Co. Ltd. 2,009,903
102,600 Terumo Corp. 5,244,667
119,200 Toyota Motor Corp. 5,632,292
------------
112,216,823
------------
LUXEMBOURG -- 0.8%
66,630 Millicom International Cellular SA 6,896,205
------------
NETHERLANDS -- 0.6%
192,870 ASML Holding N.V. 4,754,306
------------
NORWAY -- 2.0%
239,105 Aker Solutions ASA 5,650,240
421,300 Norsk Hydro ASA 6,159,671
58,330 Yara International ASA 5,169,656
------------
16,979,567
------------
Shares Value
PEOPLE'S REPUBLIC OF CHINA -- 1.1%
1,371,000 China Communications Construction Co. Ltd. H
Shares $ 2,345,619
1,941,500 China Merchants Bank Co., Ltd. H Shares 6,100,530
19,141 Ctrip.com International, Ltd. ADR 876,275
------------
9,322,424
------------
RUSSIAN FEDERATION -- 1.0%
39,950 OAO LUKOIL 3,923,090
1,474,050 Sberbank 4,657,998
------------
8,581,088
------------
SINGAPORE -- 0.6%
266,000 Keppel Corp. Ltd. 2,178,933
184,000 United Overseas Bank Ltd. 2,519,269
------------
4,698,202
------------
SOUTH KOREA -- 0.5%
7,170 Samsung Electronics 4,280,495
------------
SPAIN -- 3.4%
564,010 Banco Santander SA 10,367,303
325,409 Cintra Concesiones de Infraestructuras de
Transporte SA(1) 3,649,369
93,210 Gamesa Corporacion Tecnologica SA 4,583,567
378,480 Telefonica SA 10,062,908
------------
28,663,147
------------
SWEDEN -- 0.4%
34,970 Oriflame Cosmetics SA SDR 2,251,238
146,544 Telefonaktiebolaget LM Ericsson B Shares 1,528,909
------------
3,780,147
------------
SWITZERLAND -- 9.6%
304,520 ABB Ltd.(2) 8,676,260
59,090 Actelion Ltd.(1)(2) 3,169,001
84,410 Compagnie Financiere Richemont SA A Shares 4,708,985
206,000 Julius Baer Holding AG 13,935,977
275,600 Nestle SA 12,472,863
181,450 Novartis AG 10,006,924
38,936 Roche Holding AG 7,024,093
3,570 SGS SA 5,117,251
49,560 Syngenta AG 16,144,232
------------
81,255,586
------------
TAIWAN (REPUBLIC OF CHINA) -- 0.3%
1,846,000 AU Optronics Corp. 2,901,005
------------
- ------
9
VP International
Shares Value
UNITED KINGDOM -- 20.5%
131,460 Admiral Group plc $ 2,092,593
453,570 AMEC plc 8,047,307
133,361 Anglo American plc 9,374,053
683,370 BG Group plc 17,805,236
174,055 British American Tobacco plc 6,033,959
95,115 Burberry Group plc 858,941
414,320 Cadbury plc 5,224,114
382,648 Capita Group plc 5,244,310
1,050,640 Compass Group plc 7,948,441
474,848 GlaxoSmithKline plc 10,535,764
538,080 HSBC Holdings plc(1) 8,343,289
284,850 ICAP plc 3,077,739
734,210 International Power plc 6,322,958
113,630 Johnson Matthey plc 4,181,585
41,670 Lonmin plc 2,650,736
959,701 Man Group plc 11,938,143
240,567 Reckitt Benckiser Group plc 12,205,065
426,520 Scottish and Southern Energy plc 11,929,255
408,940 Stagecoach Group plc 2,282,621
179,810 Standard Chartered plc 5,125,853
2,167,531 Tesco plc 15,957,353
968,950 TUI Travel plc 3,959,784
4,521,650 Vodafone Group plc 13,444,246
------------
174,583,345
------------
TOTAL COMMON STOCKS
(Cost $679,514,940) 846,601,777
------------
Temporary Cash Investments -- Securities Lending Collateral(3) -- 3.7%
Repurchase Agreement, Barclays Capital Inc., (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 2.50%, dated 6/30/08, due 7/1/08 (Delivery
value $9,000,625) 9,000,000
Repurchase Agreement, BNP Paribas Securities Corp.,
(collateralized by various U.S. Government Agency obligations in a
pooled account at the lending agent), 2.45%, dated 6/30/08, due
7/1/08 (Delivery value $9,000,613) 9,000,000
Repurchase Agreement, Deutsche Bank Securities Inc.,
(collateralized by various U.S. Government Agency obligations in a
pooled account at the lending agent), 2.50%, dated 6/30/08, due
7/1/08 (Delivery value $9,000,625) 9,000,000
Shares Value
Repurchase Agreement, UBS Securities LLC, (collateralized by
various U.S. Government Agency obligations in a pooled account at
the lending agent), 2.65%, dated 6/30/08, due 7/1/08 (Delivery
value $4,716,873) $ 4,716,526
------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING COLLATERAL
(Cost $31,716,526) 31,716,526
------------
TOTAL INVESTMENT SECURITIES -- 103.3%
(Cost $711,231,466) 878,318,303
------------
OTHER ASSETS AND LIABILITIES -- (3.3)% (28,367,768)
------------
TOTAL NET ASSETS -- 100.0% $849,950,535
============
Market Sector Diversification
(as a % of net assets)
Financials 17.4%
Industrials 15.2%
Materials 15.1%
Energy 11.1%
Consumer Staples 8.3%
Health Care 8.2%
Consumer Discretionary 7.2%
Information Technology 7.0%
Utilities 4.9%
Telecommunication Services 4.5%
Diversified 0.7%
Cash and Equivalents+ 0.4%
+Includes securities lending collateral and other assets and liabilities.
Notes to Schedule of Investments
ADR = American Depositary Receipt
MSCI = Morgan Stanley Capital International
SDR = Swedish Depositary Receipt
(1) Security, or a portion thereof, was on loan as of June 30, 2008.
(2) Non-income producing.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $679,514,940) --
including $30,001,730 of securities on loan $846,601,777
Investments made with cash collateral received for securities on
loan, at value (cost of $31,716,526) 31,716,526
------------
Total investment securities, at value (cost of $711,231,466) 878,318,303
Foreign currency holdings, at value (cost of $6,741,721) 6,718,308
Receivable for investments sold 10,231,565
Dividends and interest receivable 2,309,947
------------
897,578,123
------------
LIABILITIES
Disbursements in excess of demand deposit cash 6,104,645
Payable for collateral received for securities on loan 31,716,526
Payable for investments purchased 8,875,578
Accrued management fees 894,602
Distribution fees payable 36,237
------------
47,627,588
------------
NET ASSETS $849,950,535
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $668,174,339
Undistributed net investment income 7,485,975
Undistributed net realized gain on investment and foreign currency
transactions 7,145,204
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 167,145,017
------------
$849,950,535
============
CLASS I, $0.01 PAR VALUE
Net assets $570,630,025
Shares outstanding 57,568,661
Net asset value per share $9.91
CLASS II, $0.01 PAR VALUE
Net assets $148,450,373
Shares outstanding 14,994,075
Net asset value per share $9.90
CLASS III, $0.01 PAR VALUE
Net assets $109,011,384
Shares outstanding 10,997,121
Net asset value per share $9.91
CLASS IV, $0.01 PAR VALUE
Net assets $21,858,753
Shares outstanding 2,206,321
Net asset value per share $9.91
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $1,454,476) $ 13,176,783
Securities lending, net 558,924
Interest 73,585
-------------
13,809,292
-------------
EXPENSES:
Management fees 5,496,977
Distribution fees:
Class II 195,271
Class IV 27,940
Directors' fees and expenses 11,977
Other expenses 20,406
-------------
5,752,571
-------------
NET INVESTMENT INCOME (LOSS) 8,056,721
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (net of foreign taxes accrued of
$(31,213)) (25,946,988)
Foreign currency transactions 34,886,684
-------------
8,939,696
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (net of foreign taxes accrued of $915,690) (105,060,756)
Translation of assets and liabilities in foreign currencies 7,084,469
-------------
(97,976,287)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (89,036,591)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(80,979,870)
=============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 8,056,721 $ 9,430,665
Net realized gain (loss) 8,939,696 137,595,970
Change in net unrealized appreciation
(depreciation) (97,976,287) 11,731,508
------------- --------------
Net increase (decrease) in net assets resulting
from operations (80,979,870) 158,758,143
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (4,434,878) (4,397,585)
Class II (883,693) (920,556)
Class III (812,657) (867,411)
Class IV (126,444) (81,096)
From net realized gains:
Class I (52,094,120) --
Class II (13,029,835) --
Class III (9,545,840) --
Class IV (1,864,389) --
------------- --------------
Decrease in net assets from distributions (82,791,856) (6,266,648)
------------- --------------
CAPITAL SHARE TRANSACTIONS
------------- --------------
Net increase (decrease) in net assets from
capital share transactions (16,518,761) (38,507,694)
------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS (180,290,487) 113,983,801
NET ASSETS
Beginning of period 1,030,241,022 916,257,221
------------- --------------
End of period $849,950,535 $1,030,241,022
============= ==============
Undistributed net investment income $7,485,975 $5,655,713
============= ==============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP International Fund (the fund) is
one fund in a series issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is to seek capital growth. The
fund pursues its investment objective by investing primarily in stocks of
foreign companies that management believes will increase in value over time.
The fund will invest primarily in securities of issuers located in at least
three developed countries (excluding the United States). The following is a
summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II, Class III
and Class IV. The share classes differ principally in their respective
distribution and shareholder servicing expenses and arrangements. All shares
of the fund represent an equal pro rata interest in the net assets of the
class to which such shares belong, and have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except for
class specific expenses and exclusive rights to vote on matters affecting only
individual classes. Income, non-class specific expenses, and realized and
unrealized capital gains and losses of the fund are allocated to each class of
shares based on their relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes. Certain countries impose taxes on realized gains
on the sale of securities registered in their country. The fund records the
foreign tax expense, if any, on an accrual basis. The realized and unrealized
tax provision reduces the net realized gain (loss) on investment transactions
and net unrealized appreciation (depreciation) on investments, respectively.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of
premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Realized
and unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
- ------
14
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on foreign currency transactions and unrealized
appreciation (depreciation) on translation of assets and liabilities in
foreign currencies, respectively. Certain countries may impose taxes on the
contract amount of purchases and sales of foreign currency contracts in their
currency. The fund records the foreign tax expense, if any, as a reduction to
the net realized gain (loss) on foreign currency transactions.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) has
determined are creditworthy pursuant to criteria adopted by the Board of
Directors. Each repurchase agreement is recorded at cost. The fund requires
that the collateral, represented by securities, received in a repurchase
transaction be transferred to the custodian in a manner sufficient to enable
the fund to obtain those securities in the event of a default under the
repurchase agreement. ACIM monitors, on a daily basis, the securities
transferred to ensure the value, including accrued interest, of the securities
under each repurchase agreement is equal to or greater than amounts owed to
the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. Additionally, non-U.S. tax returns filed by the fund
due to investments in certain foreign securities remain subject to examination
by the relevant taxing authority for 7 years from the date of filing. At this
time, management has not identified any uncertain tax positions for which it
is reasonably possible that the total amounts of unrecognized tax benefits
will significantly change in the next twelve months. Accordingly, no provision
has been made for federal or state income taxes. Interest and penalties
associated with any federal or state income tax obligations, if any, are
recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
The fund has elected to treat $(17,771) of net foreign currency losses
incurred in the two-month period ended December 31, 2007, as having been
incurred in the following fiscal year for federal income tax purposes.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee
is retained by the fund and helps cover transaction costs that long-term
investors may bear when a fund sells securities to meet investor redemptions.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
- ------
15
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACGIM (the investment advisor), under which ACGIM provides the fund with
investment advisory and management services in exchange for a single, unified
management fee (the fee) per class. The Agreement provides that all expenses
of the fund, except brokerage commissions, taxes, interest, fees and expenses
of those directors who are not considered "interested persons" as defined in
the 1940 Act (including counsel fees) and extraordinary expenses, will be paid
by ACGIM. The fee is computed and accrued daily based on the daily net assets
of the specific class of shares of the fund and paid monthly in arrears. For
funds with a stepped fee schedule, the rate of the fee is determined by
applying a fee rate calculation formula. This formula takes into account all
of the investment advisor's assets under management in the fund's investment
strategy (strategy assets) to calculate the appropriate fee rate for the fund.
The strategy assets include the fund's assets and the assets of other clients
of the investment advisor that are not in the American Century Investments
family of funds, but that have the same investment team and investment
strategy. The annual management fee schedule for each class of the fund ranges
from 1.00% to 1.50% for Class I and Class III and from 0.90% to 1.40% for
Class II and Class IV. The effective annual management fee for each class of
the fund for the six months ended June 30, 2008 was 1.21%, 1.11%, 1.21% and
1.11% for Class I, Class II, Class III and Class IV, respectively.
ACGIM has entered into a Subadvisory Agreement with ACIM (the subadvisor) on
behalf of the fund. The subadvisor makes investment decisions for the cash
portion of the fund in accordance with the fund's investment objectives,
policies and restrictions under the supervision of ACGIM and the Board of
Directors. ACGIM pays all costs associated with retaining ACIM as the
subadvisor of the fund.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan for Class II and a separate Master Distribution Plan for
Class IV (collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act.
The plans provide that Class II and Class IV will pay American Century
Investment Services, Inc. (ACIS) an annual distribution fee equal to 0.25%.
The fee is computed and accrued daily based on each class's daily net assets
and paid monthly in arrears. The distribution fee provides compensation for
expenses incurred in connection with distributing shares of the classes
including, but not limited to, payments to brokers, dealers and financial
institutions that have entered into sales agreements with respect to shares of
the fund. Fees incurred under the plan during the six months ended June 30,
2008, are detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACGIM, the corporation's subadvisor, ACIM, the distributor
of the corporation, ACIS, and the corporation's transfer agent, American
Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $511,394,885 and
$599,408,507, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $716,260,471
============
Gross tax appreciation of investments $190,769,106
Gross tax depreciation of investments (28,711,274)
------------
Net tax appreciation (depreciation) of investments $162,057,832
============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales and investments in passive foreign investments companies.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Six months ended June 30, 2008 Year ended December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 300,000,000 300,000,000
============ ============
Sold 5,897,907 $ 60,185,044 11,403,571 $128,126,022
Issued in
reinvestment of
distributions 5,803,799 56,528,998 442,859 4,397,585
Redeemed 13,369,281) (137,140,647) (13,918,302) (153,498,425)
------------ --------------- ------------ ---------------
(1,667,575) (20,426,605) (2,071,872) (20,974,818)
------------ --------------- ------------ ---------------
CLASS II/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 692,031 7,037,992 1,252,967 14,069,808
Issued in
reinvestment of
distributions 1,429,962 13,913,528 92,798 920,556
Redeemed (1,992,637) (20,593,185) (2,414,771) (26,727,006)
------------ --------------- ------------ ---------------
129,356 358,335 (1,069,006) (11,736,642)
------------ --------------- ------------ ---------------
CLASS
III/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 289,996 3,040,659 1,020,710 11,318,614
Issued in
reinvestment of
distributions 1,063,501 10,358,497 87,353 867,411
Redeemed (1,186,441) (12,341,315)(1) (2,269,465) (25,055,813)(2)
------------ --------------- ------------ ---------------
167,056 1,057,841 (1,161,402) (12,869,788)
------------ --------------- ------------ ---------------
CLASS IV/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 332,356 3,566,502 882,964 10,069,035
Issued in
reinvestment of
distributions 204,398 1,990,833 8,167 81,096
Redeemed (297,976) (3,065,667)(3) (288,111) (3,076,577)(4)
------------ --------------- ------------ ---------------
238,778 2,491,668 603,020 7,073,554
------------ --------------- ------------ ---------------
Net increase
(decrease) (1,132,385) $(16,518,761) (3,699,260) $(38,507,694)
=========== ============== =========== ==============
(1) Net of redemption fees of $9,069.
(2) Net of redemption fees of $13,588.
(3) Net of redemption fees of $5,976.
(4) Net of redemption fees of $5,894.
5. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $30,001,730 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM or ACGIM. Cash collateral is invested in
authorized investments by the lending agent in a pooled account. The value of
cash collateral received at period end is disclosed in the Statement of Assets
and Liabilities and investments made with the cash by the lending agent are
listed in the Schedule of Investments. Any deficiencies or excess of
collateral must be delivered or transferred by the member firms no later than
the close of business on the next business day. The total market value of all
collateral received, at this date, was $31,716,526. The fund's risks in
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due. If the borrower defaults,
receipt of the collateral by the fund may be delayed or limited.
- ------
17
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities as of June 30, 2008:
Valuation Inputs Value of Investment Securities
Level 1 - Quoted Prices $ 32,358,836
Level 2 - Other Significant Observable Inputs 845,959,467
Level 3 - Significant Unobservable Inputs --
------------
$878,318,303
============
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
8. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
Investing in emerging markets may accentuate these risks.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
18
FINANCIAL HIGHLIGHTS
VP International
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of
Period $11.86 $10.12 $8.23 $7.35 $6.43 $5.21
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.09 0.11 0.05 0.09 0.04 0.04
Net Realized
and
Unrealized
Gain (Loss) (1.05) 1.70 1.98 0.88 0.92 1.22
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.96) 1.81 2.03 0.97 0.96 1.26
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.08) (0.07) (0.14) (0.09) (0.04) (0.04)
From Net
Realized
Gains (0.91) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.99) (0.07) (0.14) (0.09) (0.04) (0.04)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $9.91 $11.86 $10.12 $8.23 $7.35 $6.43
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (7.95)% 18.06% 25.03% 13.25% 14.92% 24.51%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net Assets 1.22%(4) 1.20% 1.23% 1.23% 1.27% 1.34%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.77%(4) 1.00% 0.57% 1.15% 0.59% 0.67%
Portfolio
Turnover Rate 55% 101% 98% 97% 120% 185%
Net Assets, End
of Period (in
thousands) $570,630 $702,517 $620,235 $558,013 $537,982 $512,814
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net assets
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
19
VP International
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $11.84 $10.10 $8.22 $7.34 $6.42 $5.20
-------- -------- -------- -------- ------- -------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.08 0.09 0.04 0.07 0.02 0.01
Net Realized
and Unrealized
Gain (Loss) (1.05) 1.71 1.97 0.88 0.93 1.24
-------- -------- -------- -------- ------- -------
Total From
Investment
Operations (0.97) 1.80 2.01 0.95 0.95 1.25
-------- -------- -------- -------- ------- -------
Distributions
From Net
Investment
Income (0.06) (0.06) (0.13) (0.07) (0.03) (0.03)
From Net
Realized Gains (0.91) -- -- -- -- --
-------- -------- -------- -------- ------- -------
Total
Distributions (0.97) (0.06) (0.13) (0.07) (0.03) (0.03)
-------- -------- -------- -------- ------- -------
Net Asset Value,
End of Period $9.90 $11.84 $10.10 $8.22 $7.34 $6.42
======== ======== ======== ======== ======= =======
TOTAL RETURN(3) (8.01)% 17.92% 24.74% 13.11% 14.77% 24.36%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 1.37%(4) 1.35% 1.38% 1.38% 1.42% 1.49%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.62%(4) 0.85% 0.42% 1.00% 0.44% 0.52%
Portfolio Turnover
Rate 55% 101% 98% 97% 120% 185%
Net Assets, End of
Period (in
thousands) $148,450 $175,972 $160,914 $123,337 $81,773 $44,556
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
20
VP International
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $11.86 $10.12 $8.23 $7.36 $6.43 $5.21
-------- -------- -------- -------- ------- -------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.09 0.11 0.05 0.09 0.04 0.04
Net Realized
and Unrealized
Gain (Loss) (1.05) 1.70 1.98 0.87 0.93 1.22
-------- -------- -------- -------- ------- -------
Total From
Investment
Operations (0.96) 1.81 2.03 0.96 0.97 1.26
-------- -------- -------- -------- ------- -------
Distributions
From Net
Investment
Income (0.08) (0.07) (0.14) (0.09) (0.04) (0.04)
From Net
Realized Gains (0.91) -- -- -- -- --
-------- -------- -------- -------- ------- -------
Total
Distributions (0.99) (0.07) (0.14) (0.09) (0.04) (0.04)
-------- -------- -------- -------- ------- -------
Net Asset Value,
End of Period $9.91 $11.86 $10.12 $8.23 $7.36 $6.43
======== ======== ======== ======== ======= =======
TOTAL RETURN(3) (7.95)% 18.06% 25.03% 13.10% 15.08% 24.51%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 1.22%(4) 1.20% 1.23% 1.23% 1.27% 1.34%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 1.77%(4) 1.00% 0.57% 1.15% 0.59% 0.67%
Portfolio Turnover
Rate 55% 101% 98% 97% 120% 185%
Net Assets, End of
Period (in
thousands) $109,011 $128,447 $121,320 $107,098 $96,358 $83,133
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
21
VP International
Class IV
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning
of Period $11.85 $10.10 $8.22 $7.35 $6.47
-------- ------- ------- ------- --------
Income From Investment
Operations
Net Investment Income
(Loss)(3) 0.08 0.09 0.04 0.08 --(4)
Net Realized and
Unrealized Gain (Loss) (1.05) 1.72 1.97 0.87 0.88
-------- ------- ------- ------- --------
Total From Investment
Operations (0.97) 1.81 2.01 0.95 0.88
-------- ------- ------- ------- --------
Distributions
From Net Investment
Income (0.06) (0.06) (0.13) (0.08) --
From Net Realized Gains (0.91) -- -- -- --
-------- ------- ------- ------- --------
Total Distributions (0.97) (0.06) (0.13) (0.08) --
-------- ------- ------- ------- --------
Net Asset Value, End of
Period $9.91 $11.85 $10.10 $8.22 $7.35
======== ======= ======= ======= ========
TOTAL RETURN(5) (8.00)% 17.90% 24.86% 12.97% 13.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets 1.37%(6) 1.35% 1.38% 1.38% 1.42%(6)
Ratio of Net Investment
Income (Loss) to Average Net
Assets 1.62%(6) 0.85% 0.42% 1.00% (0.01)%(6)
Portfolio Turnover Rate 55% 101% 98% 97% 120%(7)
Net Assets, End of Period
(in thousands) $21,859 $23,306 $13,788 $10,420 $6,294
(1) Six months ended June 30, 2008 (unaudited).
(2) May 3, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2004.
See Notes to Financial Statements.
- ------
22
APPROVAL OF MANAGEMENT AGREEMENT
VP International
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services (including subadvisory services) are required to be
reviewed, evaluated and approved by a majority of a fund's independent
directors or trustees (the "Directors") each year. At American Century
Investments, this process is referred to as the "15(c) Process." As a part of
this process, the board reviews fund performance, shareholder services, audit
and compliance information, and a variety of other reports from the advisor
concerning fund operations. In addition to this annual review, the board of
directors oversees and evaluates on a continuous basis at its quarterly
meetings the nature and quality of significant services performed by the
advisor and the subadvisor, fund performance, audit and compliance
information, and a variety of other reports relating to fund operations. The
board, or committees of the board, also holds special meetings as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP International Fund (the "Fund") and
the services provided to the Fund under the management and subadvisory
agreements. The information considered and the discussions held at the
meetings included, but were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the Fund;
* reports on the wide range of programs and services the advisor provides to
the Fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of both the advisor and the subadvisor;
* data comparing the cost of owning the Fund to the cost of owning a similar
fund;
* data comparing the Fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the Fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the Fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
23
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the Fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management and subadvisory agreements under the terms
ultimately determined by the board to be appropriate, the Directors' decision
was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the Fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* Fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of Fund assets
* daily valuation of the Fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. The directors specifically noted that with respect to the Fund,
the advisor had retained the subadvisor to provide the day-to-day cash
management. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the Fund is quite complex and allows Fund shareholders
access to professional money management, instant diversification of their
investments, and liquidity. In evaluating investment performance, the board
expects the advisor and subadvisor to manage the Fund in accordance with its
investment objectives and approved strategies. In providing these services,
the advisor
- ------
24
and subadvisor utilize teams of investment professionals (portfolio managers,
analysts, research assistants, and securities traders) who require extensive
information technology, research, training, compliance and other systems to
conduct their business. At each quarterly meeting the Directors review
investment performance information for the Fund, together with comparative
information for appropriate benchmarks and peer groups of funds managed
similarly to the Fund. The Directors also review detailed performance
information during the 15(c) Process comparing the Fund's performance with
that of similar funds not managed by the advisor. If performance concerns are
identified, the Directors discuss with the advisor the reasons for such
results (e.g., market conditions, security selection) and any efforts being
undertaken to improve performance. The Fund's performance for both the one-
and three-year periods was above the median for its peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the Fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to Fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the Fund, its
profitability in managing the Fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the Fund. The board did not consider the
profitability of the subadvisor because the subadvisor is paid from the
unified fee of the advisor as a result of arm's length negotiations.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices. With respect to the subadvisor, as part of its oversight
responsibilities, the board approves the subadvisor's code of ethics and any
changes thereto. Further, through the advisor's compliance group, the board
stays abreast of any violations of the subadvisor's code.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability
- ------
25
of its management of the Fund specifically, the expenses incurred by the
advisor in providing various functions to the Fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the Fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
COMPARISON TO OTHER FUNDS' FEES. The Fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the Fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
Fund's independent directors (including their independent legal counsel). The
Directors specifically noted that the subadvisory fees paid to the subadvisor
under the subadvisory agreement were subject to arm's length negotiation
between the advisor and the subadvisor and are paid by the advisor out of its
unified fee.
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to Fund shareholders because it clearly
discloses to shareholders the cost of owning Fund shares, and, since the
unified fee cannot be increased without a vote of Fund shareholders, it shifts
to the advisor the risk of increased costs of operating the Fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the Fund's unified fee to the total
expense ratio of other funds in the Fund's peer group. The unified fee charged
to shareholders of the Fund was slightly above the median of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the Fund to the advisor was reasonable in light of the services provided to
the Fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the Fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the Fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the Fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the Fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the Fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute Fund portfolio transactions and concluded that this research is likely
to benefit Fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to
- ------
26
certain clients other than the Fund, at least in part, due to its existing
infrastructure built to serve the fund complex. The Directors concluded,
however, that the assets of those other clients are not material to the
analysis and, in any event, are included with the assets of the Fund to
determine breakpoints in the Fund's fee schedule, provided they are managed
using the same investment team and strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the Fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
Additionally, the board, including all the independent directors, in the
absence of particular circumstances and assisted by the advice of legal
counsel that is independent of the advisor, taking into account all of the
factors discussed above and the information provided by the advisor, concluded
that the subadvisory agreement between the advisor and the subadvisor, on
behalf of the fund, is fair and reasonable in light of the services provided
and should be renewed.
- ------
27
ADDITIONAL INFORMATION
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
Morgan Stanley Capital International (MSCI) has developed several indices that
measure the performance of foreign stock markets.
The MSCI EAFE (EUROPE, AUSTRALASIA, FAR EAST) INDEX is designed to measure
developed market equity performance, excluding the U.S. and Canada.
The MSCI EAFE GROWTH INDEX is a capitalization-weighted index that monitors
the performance of growth stocks from Europe, Australasia, and the Far East.
The MSCI EAFE VALUE INDEX is a capitalization-weighted index that monitors the
performance of value stocks from Europe, Australasia, and the Far East.
The MSCI EM (EMERGING MARKETS) INDEX represents the net performance of stocks
in global emerging market countries.
The MSCI EUROPE INDEX is designed to measure equity market performance in
Europe.
The MSCI JAPAN INDEX is designed to measure equity market performance in Japan.
The MSCI WORLD FREE INDEX represents the performance of stocks in developed
countries (including the United States) that are available for purchase by
global investors.
PROXY VOTING GUIDELINES
American Century Global Investment Management, Inc., the fund's investment
advisor, is responsible for exercising the voting rights associated with the
securities purchased and/or held by the fund. A description of the policies
and procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
28
[back cover]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE. . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF. . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Global Investment Management, Inc.
New York, New York
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61144
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
AMERICAN CENTURY VARIABLE PORTFOLIOS
[american century investments logo and text logo ®]
VP LARGE COMPANY VALUE FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP LARGE COMPANY VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
OTHER INFORMATION
Approval of Management Agreement for VP Large Company Value . . . . . 21
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 25
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indices suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Large Company Value
Total Returns as of June 30, 2008
Average Annual Returns
Since Inception
6 months(1) 1 year Inception Date
CLASS II -15.09% -20.94% 3.87%(2) 10/29/04
RUSSELL 1000 VALUE
INDEX(3) -13.57% -18.78% 5.70% --
S&P 500 INDEX(3) -11.91% -13.12% 5.44% --
Class I -15.02% -20.82% 2.16%(2) 12/1/04
(1) Total returns for periods less than one year are not annualized.
(2) Returns would have been lower if management fees had not been voluntarily
reimbursed and/or waived.
(3) Data provided by Lipper Inc. -- A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
3
VP Large Company Value
Growth of $10,000 Over Life of Class
$10,000 investment made October 29, 2004
One-Year Returns Over Life of Class
Periods ended June 30
2005* 2006 2007 2008
Class II 8.13%** 10.45%** 21.77% -20.94%
Russell 1000 Value Index 10.49% 12.10% 21.87% -18.78%
S&P 500 Index 6.72% 8.63% 20.59% -13.12%
* From 10/29/04, Class II's inception date, to 6/30/05. Not annualized.
** Returns would have been lower, along with the ending value, if management
fees had not been voluntarily reimbursed and/or waived.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
4
PORTFOLIO COMMENTARY
VP Large Company Value
Portfolio Managers: Chuck Ritter and Brendan Healy
PERFORMANCE SUMMARY
VP Large Company Value returned -15.02%* for the six months ended June 30,
2008. By comparison, its benchmark, the Russell 1000 Value Index, returned
- -13.57%, while the broader market, as measured by the S&P 500 Index, returned
- -11.91%. (The portfolio's returns reflect operating expenses, while the
indices' returns do not.) The average return for Morningstar's Large Cap Value
category (whose performance, like VP Large Company Value's, reflects fund
operating expenses) was -13.79%.**
VP Large Company Value's performance for the period was hampered by the
volatile, challenging market environment described in the Market Perspective
on page 2. Although both growth and value indices were negative, growth stocks
outperformed value across the capitalization spectrum. In addition, for much
of the period, investors favored companies that were already strong
performers, a momentum bias that did not fit well with the portfolio's
investment approach of seeking stocks that are undervalued by the market. Our
position in the energy and financials sectors detracted the most from relative
performance, while effective security selection in information technology,
consumer staples, and health care added to results.
ENERGY POSITION HAMPERED PERFORMANCE
Although the portfolio's position in the energy sector contributed on an
absolute basis, it underperformed in relative terms. Energy stocks,
specifically oil and gas companies, provided the strongest results for the
Russell 1000 Value Index. Because of valuations, we were underweight in energy
companies that focus exclusively on the exploration and production of oil and
natural gas, which turned in strong performances for the benchmark.
FINANCIALS DETRACTED
Financials stocks -- the portfolio's largest single position, but a relative
underweight nonetheless -- represented another source of underperformance
versus the benchmark. Many financial firms struggled as the fallout in the
subprime lending category continued. No segment was immune from the downturn.
Two of our top detractors were Freddie Mac, a stockholder-owned corporation
chartered by Congress to keep money flowing to mortgage lenders in support of
home ownership; and Citigroup, a diversified global financial services
company. Both stocks declined on news of greater-than-expected losses on
subprime loan exposure, resulting from housing weakness and the deterioration
of mortgage credit.
Top Ten Holdings as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Exxon Mobil Corp. 5.7% 5.0%
General Electric Co. 4.4% 4.3%
Chevron Corp. 4.3% 3.5%
AT&T Inc. 3.7% 3.3%
Royal Dutch Shell plc ADR 3.1% 2.8%
ConocoPhillips 3.0% 2.4%
Johnson & Johnson 3.0% 2.3%
Pfizer Inc. 2.5% 2.1%
JPMorgan Chase & Co. 2.4% 2.6%
Citigroup Inc. 2.3% 3.2%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
** The average return for Morningstar's Large Cap Value category was -18.59%
for the one-year period ended June 30, 2008, and 4.73% since the fund's
inception. ©2008 Morningstar, Inc. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers: (2) may not be copied or distributed; and (3) is not warranted to
be accurate, complete or timely. Neither Morningstar nor its content providers
are responsible for any damages or losses arising from any use of this
information.
- ------
5
VP Large Company Value
SECURITY SELECTION CONTRIBUTED
Strong security selection added to our progress versus the benchmark. In
information technology, most of the gains came from leading technology
companies. A significant holding was International Business Machines (IBM),
which has benefited from a diverse product mix, strategic acquisitions, and
cost efficiencies. Despite economic headwinds, the company reported
better-than-expected results driven by growth in U.S. and overseas markets.
During the period, IBM also declared a 25% increase in its quarterly dividend.
In consumer staples, our preference for industry leaders also proved
advantageous as many of these names outperformed the benchmark. A top
contributor was retailer Wal-Mart Stores. Higher prices at the pump and
falling home prices are putting pressure on consumers -- making the Wal-Mart
low-price strategy particularly appealing to lower-income households.
In health care, investments in pharmaceuticals companies and health care added
value. A key holding was Wyeth. Investors appeared to react favorably to news
about the company's drug development research efforts, sending Wyeth's stock
price higher.
OUTLOOK
We continue to be bottom-up investment managers, evaluating each company
individually and building our portfolio one stock at a time. VP Large Company
Value is broadly diversified, with ongoing overweight positions in the
information technology and industrials sectors. We are still finding greater
value opportunities among mega-cap stocks and have maintained our bias toward
these firms.
Top Five Industries as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Oil, Gas & Consumable Fuels 16.3% 13.9%
Pharmaceuticals 9.5% 8.4%
Diversified Financial Services 6.9% 8.8%
Diversified Telecommunication Services 6.1% 4.9%
Insurance 5.5% 6.3%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Common Stocks and Futures 97.4% 95.3%
Cash and Equivalents(1) 2.6% 4.7%
(1) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $849.80 $4.14 0.90%
Class II $1,000 $849.10 $4.83 1.05%
HYPOTHETICAL
Class I $1,000 $1,020.39 $4.52 0.90%
Class II $1,000 $1,019.64 $5.27 1.05%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Large Company Value
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 96.2%
AEROSPACE & DEFENSE -- 1.1%
1,350 Northrop Grumman Corp. $ 90,315
----------
BEVERAGES -- 1.9%
2,090 Coca-Cola Co. (The) 108,638
1,700 Pepsi Bottling Group Inc. 47,464
----------
156,102
----------
BIOTECHNOLOGY -- 0.7%
1,240 Amgen Inc.(1) 58,478
----------
CAPITAL MARKETS -- 2.6%
1,060 Bank of New York Mellon Corp. (The) 40,100
500 Goldman Sachs Group, Inc. (The) 87,450
2,340 Morgan Stanley 84,404
----------
211,954
----------
CHEMICALS -- 2.1%
2,250 du Pont (E.I.) de Nemours & Co. 96,502
1,280 PPG Industries, Inc. 73,434
----------
169,936
----------
COMMERCIAL BANKS -- 4.2%
4,540 National City Corp.(2) 21,656
940 PNC Financial Services Group, Inc. 53,674
2,380 U.S. Bancorp 66,378
3,760 Wachovia Corp. 58,393
6,180 Wells Fargo & Co. 146,775
----------
346,876
----------
COMMERCIAL SERVICES & SUPPLIES -- 1.9%
830 Avery Dennison Corp. 36,462
1,830 R.R. Donnelley & Sons Co. 54,333
260 Robert Half International Inc. 6,232
1,520 Waste Management, Inc. 57,319
----------
154,346
----------
COMMUNICATIONS EQUIPMENT -- 0.2%
1,630 Motorola, Inc. 11,964
----------
COMPUTERS & PERIPHERALS -- 1.3%
2,410 Hewlett-Packard Co. 106,546
----------
CONSUMER FINANCE -- 0.3%
1,560 Discover Financial Services 20,545
----------
DIVERSIFIED CONSUMER SERVICES -- 0.7%
2,790 H&R Block, Inc. 59,706
----------
Shares Value
DIVERSIFIED FINANCIAL SERVICES -- 6.9%
7,420 Bank of America Corp.(3) $ 177,115
11,270 Citigroup Inc. 188,885
5,820 JPMorgan Chase & Co. 199,685
----------
565,685
----------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 6.1%
8,930 AT&T Inc. 300,852
660 Embarq Corp. 31,198
4,680 Verizon Communications Inc. 165,672
----------
497,722
----------
ELECTRIC UTILITIES -- 2.8%
1,390 Exelon Corp. 125,045
1,960 PPL Corp. 102,449
----------
227,494
----------
ENERGY EQUIPMENT & SERVICES -- 0.6%
560 National Oilwell Varco, Inc.(1) 49,683
----------
FOOD & STAPLES RETAILING -- 2.5%
1,980 Kroger Co. (The) 57,163
1,640 Walgreen Co. 53,316
1,680 Wal-Mart Stores, Inc. 94,416
----------
204,895
----------
FOOD PRODUCTS -- 0.7%
1,920 Unilever N.V. New York Shares 54,528
----------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7%
1,150 Medtronic, Inc. 59,513
----------
HEALTH CARE PROVIDERS & SERVICES -- 0.4%
600 Quest Diagnostics Inc. 29,082
----------
HOTELS, RESTAURANTS & LEISURE -- 0.6%
430 Darden Restaurants, Inc. 13,734
320 McDonald's Corp. 17,990
1,260 Starbucks Corp.(1) 19,833
----------
51,557
----------
HOUSEHOLD DURABLES -- 0.7%
3,360 Newell Rubbermaid Inc. 56,414
----------
HOUSEHOLD PRODUCTS -- 0.6%
880 Clorox Co. 45,936
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.8%
1,490 NRG Energy Inc.(1) 63,921
----------
- ------
8
VP Large Company Value
Shares Value
INDUSTRIAL CONGLOMERATES -- 5.0%
13,630 General Electric Co. $ 363,785
1,180 Tyco International Ltd. 47,247
----------
411,032
----------
INSURANCE -- 5.5%
2,230 Allstate Corp. 101,666
4,357 American International Group, Inc. 115,285
1,450 Hartford Financial Services Group Inc. (The) 93,627
1,010 Travelers Companies, Inc. (The) 43,834
780 Loews Corp. 36,582
1,040 Torchmark Corp. 60,996
----------
451,990
----------
IT SERVICES -- 1.8%
880 Fiserv, Inc.(1) 39,926
930 International Business Machines Corp. 110,233
----------
150,159
----------
MACHINERY -- 3.0%
1,000 Caterpillar Inc. 73,820
1,260 Dover Corp. 60,946
1,650 Ingersoll-Rand Company Ltd. Cl A 61,760
690 Parker-Hannifin Corp. 49,211
----------
245,737
----------
MEDIA -- 3.1%
1,290 CBS Corp. Cl B 25,142
2,600 Gannett Co., Inc. 56,342
7,180 Time Warner Inc. 106,264
2,120 Viacom Inc. Cl B(1) 64,745
----------
252,493
----------
METALS & MINING -- 0.7%
800 Nucor Corp. 59,736
----------
MULTILINE RETAIL -- 0.7%
1,320 Kohl's Corp.(1) 52,853
----------
OFFICE ELECTRONICS -- 0.6%
3,740 Xerox Corp. 50,714
----------
OIL, GAS & CONSUMABLE FUELS -- 16.3%
3,520 Chevron Corp. 348,937
2,640 ConocoPhillips 249,190
180 Devon Energy Corp. 21,629
5,330 Exxon Mobil Corp. 469,732
3,060 Royal Dutch Shell plc ADR 250,033
----------
1,339,521
----------
Shares Value
PAPER & FOREST PRODUCTS -- 1.0%
880 International Paper Co. $ 20,504
1,240 Weyerhaeuser Co. 63,414
----------
83,918
----------
PHARMACEUTICALS -- 9.5%
1,480 Abbott Laboratories 78,396
1,410 Eli Lilly & Co. 65,086
3,770 Johnson & Johnson 242,561
2,220 Merck & Co., Inc. 83,672
11,950 Pfizer Inc. 208,766
2,120 Wyeth 101,675
----------
780,156
----------
ROAD & RAIL -- 0.2%
1,100 YRC Worldwide Inc.(1)(2) 16,357
----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.9%
1,710 Applied Materials, Inc. 32,644
1,980 Intel Corp. 42,530
----------
75,174
----------
SOFTWARE -- 1.8%
3,250 Microsoft Corp. 89,408
2,940 Oracle Corp.(1) 61,740
----------
151,148
----------
SPECIALTY RETAIL -- 2.5%
1,480 Best Buy Co., Inc. 58,607
2,240 Gap, Inc. (The) 37,341
2,350 Home Depot, Inc. (The) 55,037
2,370 Staples, Inc. 56,288
----------
207,273
----------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
760 VF Corp. 54,097
----------
THRIFTS & MORTGAGE FINANCE -- 0.6%
1,980 Freddie Mac 32,473
1,540 MGIC Investment Corp.(2) 9,409
1,970 Washington Mutual, Inc.(2) 9,712
----------
51,594
----------
TOBACCO -- 1.3%
1,990 Altria Group Inc. 40,914
644 Lorillard, Inc.(1) 44,539
410 Philip Morris International Inc. 20,250
----------
105,703
----------
WIRELESS TELECOMMUNICATION SERVICES -- 0.6%
5,310 Sprint Nextel Corp. 50,445
----------
TOTAL COMMON STOCKS
(Cost $9,119,327) 7,883,298
----------
- ------
9
VP Large Company Value
Value
Temporary Cash Investments --
Segregated For Futures Contracts -- 1.2%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations,
3.875%, 1/15/09, valued at $102,024), in a joint trading
account at 1.70%, dated 6/30/08, due 7/1/08 (Delivery
value $100,005)
(Cost $100,000) $ 100,000
----------
Temporary Cash Investments --
Securities Lending Collateral(4) -- 0.7%
Repurchase Agreement, Barclays Capital Inc.,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.50%, dated 6/30/08, due 7/1/08 (Delivery value $15,001) 15,000
Repurchase Agreement, BNP Paribas Securities Corp.,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.45%, dated 6/30/08, due 7/1/08 (Delivery value $15,001) 15,000
Value
Repurchase Agreement, Deutsche Bank Securities Inc.,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.50%, dated 6/30/08, due 7/1/08 (Delivery value $15,001) $ 15,000
Repurchase Agreement, UBS Securities LLC,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.65%, dated 6/30/08, due 7/1/08 (Delivery value $15,216) 15,215
----------
TOTAL TEMPORARY CASH INVESTMENTS --
SECURITIES LENDING COLLATERAL
(Cost $60,215) 60,215
----------
TOTAL INVESTMENT SECURITIES -- 98.1%
(Cost $9,279,542) 8,043,513
----------
OTHER ASSETS AND LIABILITIES -- 1.9% 152,657
----------
TOTAL NET ASSETS -- 100.0% $8,196,170
==========
Futures Contracts
Underlying Face Unrealized
Contracts Purchased Expiration Date Amount at Value Gain (Loss)
3 S&P 500 E-Mini Futures September 2008 $ 192,450 $ (7,745)
========== ==========
Notes to Schedule of Investments
ADR = American Depositary Receipt
(1) Non-income producing.
(2) Security, or a portion thereof, was on loan as of June 30, 2008.
(3) Security, or a portion thereof, has been segregated for futures contracts.
(4) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $9,219,327) -- including
$57,134 of securities on loan $7,983,298
Investments made with cash collateral received for securities on
loan, at value (cost of $60,215) 60,215
-----------
Total investment securities, at value (cost of $9,279,542) 8,043,513
Cash 119,747
Receivable for investments sold 298,281
Receivable for variation margin on futures contracts 443
Dividends and interest receivable 12,805
-----------
8,474,789
-----------
LIABILITIES
Payable for collateral received for securities on loan 60,215
Payable for investments purchased 211,737
Accrued management fees 6,135
Distribution fees payable 532
-----------
278,619
-----------
NET ASSETS $8,196,170
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $9,569,402
Undistributed net investment income 91,513
Accumulated net realized loss on investment transactions (220,971)
Net unrealized depreciation on investments (1,243,774)
-----------
$8,196,170
===========
CLASS I, $0.01 PAR VALUE
Net assets $5,723,786
Shares outstanding 557,125
Net asset value per share $10.27
CLASS II, $0.01 PAR VALUE
Net assets $2,472,384
Shares outstanding 238,158
Net asset value per share $10.38
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $976) $ 130,883
Interest 2,864
Securities lending, net 937
------------
134,684
------------
EXPENSES:
Management fees 39,445
Distribution fees -- Class II 3,501
Directors' fees and expenses 130
Other expenses 15
------------
43,091
------------
NET INVESTMENT INCOME (LOSS) 91,593
------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (168,941)
Futures transactions (36,870)
------------
(205,811)
------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (1,375,736)
Futures (2,555)
------------
(1,378,291)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (1,584,102)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,492,509)
============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 91,593 $ 183,146
Net realized gain (loss) (205,811) 246,601
Change in net unrealized appreciation (depreciation) (1,378,291) (564,005)
----------- -----------
Net increase (decrease) in net assets resulting from
operations (1,492,509) (134,258)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (127,810) (52,304)
Class II (55,386) (12,635)
From net realized gains:
Class I (170,114) (9,792)
Class II (79,252) (3,111)
----------- -----------
Decrease in net assets from distributions (432,562) (77,842)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions (273,058) 652,820
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (2,198,129) 440,720
NET ASSETS
Beginning of period 10,394,299 9,953,579
----------- -----------
End of period $ 8,196,170 $10,394,299
=========== ===========
Undistributed net investment income $91,513 $183,116
=========== ===========
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Large Company Value Fund (the fund)
is one fund in a series issued by the corporation. The fund is diversified
under the 1940 Act. The fund's investment objective is to seek long-term
capital growth. The production of income is a secondary objective. The fund
pursues its objective by investing in common stocks of larger companies that
management believes to be undervalued at the time of purchase. The following
is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I and Class II. The
share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of
premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
FUTURES CONTRACTS -- The fund may enter into futures contracts in order to
manage the fund's exposure to changes in market conditions. One of the risks
of entering into futures contracts is the possibility that the change in value
of the contract may not correlate with the changes in value of the underlying
securities. Upon entering into a futures contract, the fund is required to
deposit either cash or securities in an amount equal to a certain percentage
of the contract value (initial margin). Subsequent payments (variation margin)
are made or received daily, in cash, by the fund. The variation margin is
equal to the daily change in the contract value and is recorded as unrealized
gains and losses. The fund recognizes a realized gain or loss when the
contract is closed or expires. Net realized and unrealized gains or losses
occurring during the holding period of futures contracts are a component of
realized gain (loss) on futures transactions and unrealized appreciation
(depreciation) on futures, respectively.
- ------
14
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
- ------
15
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. For funds
with a stepped fee schedule, the rate of the fee is determined by applying a
fee rate calculation formula. This formula takes into account all of the
investment advisor's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of
the investment advisor that are not in the American Century Investments family
of funds, but that have the same investment team and investment strategy. The
annual management fee schedule for each class of the fund ranges from 0.70% to
0.90% for Class I and from 0.60% to 0.80% for Class II. The effective annual
management fee for each class of the fund for the six months ended June 30,
2008, was 0.90% and 0.80% for Class I and Class II, respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $801,869 and
$1,272,155, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $9,300,540
============
Gross tax appreciation of investments $ 802,560
Gross tax depreciation of investments (2,059,587)
------------
Net tax appreciation (depreciation) of investments $(1,257,027)
============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Six months ended Year ended
June 30, 2008 December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 22,468 $ 252,685 123,646 $ 1,644,602
Issued in reinvestment
of distributions 27,282 297,924 4,932 62,096
Redeemed (67,786) (796,222) (141,346) (1,876,994)
----------- ----------- ----------- -----------
(18,036) (245,613) (12,768) (170,296)
----------- ----------- ----------- -----------
CLASS II/SHARES AUTHORIZED 50,000,000 50,000,000
========== ==========
Sold 51,044 594,064 226,901 3,032,583
Issued in reinvestment
of distributions 12,195 134,638 1,238 15,746
Redeemed (65,294) (756,147) (165,415) (2,225,213)
----------- ----------- ----------- -----------
(2,055) (27,445) 62,724 823,116
----------- ----------- ----------- -----------
Net increase (decrease) (20,091) $(273,058) 49,956 $ 652,820
=========== =========== =========== ===========
5. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $57,134 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The total market value of all collateral
received, at this date, was $60,215. The fund's risks in securities lending
are that the borrower may not provide additional collateral when required or
return the securities when due. If the borrower defaults, receipt of the
collateral by the fund may be delayed or limited.
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Unrealized
Value of Gain (Loss) on
Investment Other Financial
Valuation Inputs Securities Instruments*
Level 1 -- Quoted Prices $7,883,298 $(7,745)
Level 2 -- Other Significant
Observable Inputs 160,215 --
Level 3 -- Significant
Unobservable Inputs -- --
------------ ------------
$8,043,513 $(7,745)
============ ============
*Includes futures contracts.
- ------
17
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
18
FINANCIAL HIGHLIGHTS
VP Large Company Value
Class I
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $12.71 $12.98 $10.85 $10.79 $10.61
------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment
Income (Loss)(3) 0.12 0.23 0.23 0.27 0.01
Net Realized and
Unrealized Gain (Loss) (2.00) (0.39) 1.94 0.25 0.23
------- ------- ------- ------- -------
Total From
Investment Operations (1.88) (0.16) 2.17 0.52 0.24
------- ------- ------- ------- -------
Distributions
From Net
Investment Income (0.24) (0.09) --(4) (0.25) (0.06)
From Net Realized Gains (0.32) (0.02) (0.04) (0.21) --
------- ------- ------- ------- -------
Total Distributions (0.56) (0.11) (0.04) (0.46) (0.06)
------- ------- ------- ------- -------
Net Asset Value, End of
Period $10.27 $12.71 $12.98 $10.85 $10.79
======= ======= ======= ======= =======
TOTAL RETURN(5) (15.02)% (1.27)% 19.98% 4.83% 2.29%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses
to Average Net Assets 0.90%(6) 0.90% 0.79%(7) 0.04%(7) 0.90%(6)
Ratio of Net Investment
Income (Loss)
to Average Net Assets 2.07%(6) 1.77% 1.98%(7) 2.45%(7) 0.64%(6)
Portfolio Turnover Rate 9% 22% 11% 37% 3%(8)
Net Assets, End of Period
(in thousands) $5,724 $7,312 $7,630 $1,538 $400
(1) Six months ended June 30, 2008 (unaudited).
(2) December 1, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) During the year ended December 31, 2005 and a portion of the year ended
December 31, 2006, the investment advisor voluntarily agreed to reimburse
and/or waive its management fee. Had fees not been reimbursed and/or waived,
the annualized ratios of operating expenses to average net assets and
annualized ratios of net investment income (loss) to average net assets would
have been 0.90% and 1.87% for the year ended December 31, 2006 and 0.94% and
1.55% for the year ended December 31, 2005, respectively.
(8) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the period October 29, 2004 (fund inception) through
December 31, 2004.
See Notes to Financial Statements.
- ------
19
VP Large Company Value
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value,
Beginning of Period $12.83 $13.09 $10.97 $10.79 $10.00
------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment
Income (Loss)(3) 0.11 0.22 0.22 0.24 0.04
Net Realized and
Unrealized Gain (Loss) (2.01) (0.39) 1.94 0.37 0.81
------- ------- ------- ------- -------
Total From
Investment Operations (1.90) (0.17) 2.16 0.61 0.85
------- ------- ------- ------- -------
Distributions
From Net
Investment Income (0.23) (0.07) --(4) (0.22) (0.06)
From Net Realized Gains (0.32) (0.02) (0.04) (0.21) --
------- ------- ------- ------- -------
Total Distributions (0.55) (0.09) (0.04) (0.43) (0.06)
------- ------- ------- ------- -------
Net Asset Value,
End of Period $10.38 $12.83 $13.09 $10.97 $10.79
======= ======= ======= ======= =======
TOTAL RETURN(5) (15.09)% (1.35)% 19.78% 5.59% 8.52%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses
to Average Net Assets 1.05%(6) 1.05% 0.98%(7) 0.29%(7) 1.05%(6)
Ratio of Net Investment
Income (Loss)
to Average Net Assets 1.92%(6) 1.62% 1.79%(7) 2.20%(7) 2.44%(6)
Portfolio Turnover Rate 9% 22% 11% 37% 3%
Net Assets, End of Period
(in thousands) $2,472 $3,082 $2,324 $513 $1,085
(1) Six months ended June 30, 2008 (unaudited).
(2) October 29, 2004 (fund inception) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) During the year ended December 31, 2005 and a portion of the year ended
December 31, 2006, the investment advisor voluntarily agreed to reimburse
and/or waive its management fee. Had fees not been reimbursed and/or waived,
the annualized ratios of operating expenses to average net assets and
annualized ratios of net investment income (loss) to average net assets would
have been 1.05% and 1.72% for the year ended December 31, 2006 and 1.09% and
1.40% for the year ended December 31, 2005, respectively.
See Notes to Financial Statements.
- ------
20
APPROVAL OF MANAGEMENT AGREEMENT
VP Large Company Value
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Large Company Value Fund (the
"fund") and the services provided to the fund under the management agreement.
The information considered and the discussions held at the meetings included,
but were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of
- ------
21
the fund, the Directors did not identify any single factor as being
all-important or controlling, and each Director may have attributed different
levels of importance to different factors. In deciding to renew the management
agreement under the terms ultimately determined by the board to be
appropriate, the Directors' decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process
- ------
22
comparing the fund's performance with that of similar funds not managed by the
advisor. If performance concerns are identified, the Directors discuss with
the advisor the reasons for such results (e.g., market conditions, security
selection) and any efforts being undertaken to improve performance. The fund's
quarter end performance fell below the median for its peer group for both the
one- and three-year periods during the past year. The board discussed the
fund's performance with the advisor and was satisfied with the efforts being
undertaken by the advisor. The board will continue to monitor these efforts
and the performance of the fund. More detailed information about the fund's
performance can be found in the Performance and Portfolio Commentary sections
of this report.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
23
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was equal to the median of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the fund to the advisor was reasonable in light of the services provided to
the fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
24
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
25
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure of
U.S. stock market performance.
- ------
26
NOTES
- ------
27
NOTES
- ------
28
[back cover]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61149
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP MID CAP VALUE FUND
[blank page]
TABLE OF CONTENTS
Market Perspective . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns. . . . . . . . . . . . . . . . . . . . . 2
VP MID CAP VALUE
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example. . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments. . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . 12
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . 14
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 15
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 20
OTHER INFORMATION
Approval of Management Agreement for VP Mid Cap Value. . . . . . . . 22
Additional Information . . . . . . . . . . . . . . . . . . . . . . . 27
Index Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 28
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer,
American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Mid Cap Value
Total Returns as of June 30, 2008
Average Annual
Returns
Since Inception
6 months(1) 1 year Inception Date
CLASS II -9.21% -19.37% 7.60% 10/29/04
RUSSELL MIDCAP VALUE
INDEX(2) -8.58% -17.09% 8.59% --
Class I -9.11% -19.25% 5.66% 12/1/04
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. - A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
3
VP Mid Cap Value
Growth of $10,000 Over Life of Class
$10,000 investment made October 29, 2004
One-Year Returns Over Life of Class
Periods ended June 30
2005* 2006 2007 2008
Class II 15.99% 11.32% 25.68% -19.37%
Russell Midcap Value Index 17.01% 14.26% 22.09% -17.09%
*From 10/29/04, Class II's inception date. Not annualized.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class II shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
4
PORTFOLIO COMMENTARY
VP Mid Cap Value
Portfolio Managers: Scott Moore, Michael Liss, and Phil Davidson
PERFORMANCE SUMMARY
VP Mid Cap Value returned -9.21%* for the six months ended June 30, 2008. By
comparison, its benchmark, the Russell Midcap Value Index, returned -8.58%.
(The portfolio's returns reflect operating expenses, while the index's return
does not.) By comparison, the median return for Morningstar's Mid Cap Value
category (whose performance, like VP Mid Cap Value's, reflects fund operating
expenses) was -8.74%**.
VP Mid Cap Value's performance for the period was hampered by the volatile,
challenging market environment described in the Market Perspective on page 2.
Although both growth and value indices were negative, growth stocks
outperformed value across the capitalization spectrum. In addition, for much
of the period, investors favored companies that were already strong
performers, a momentum bias that did not fit well with the portfolio's
investment approach of seeking stocks that are undervalued by the market.
Nevertheless, we continue to emphasize less-risky businesses with sound
balance sheets. The portfolio's underweight positions in the energy and
materials sectors detracted from relative results. VP Mid Cap Value benefited
from strong security selection in the information technology, consumer
staples, health care, and financials sectors.
ENERGY HAMPERED PROGRESS
The portfolio's underweight position in the energy sector hurt relative
results. Energy was up nearly 31% for the benchmark, one of only three sectors
(materials and health care were the other two) with positive total returns.
Because of valuations, we were underweight in companies engaged in the
exploration and production of oil and natural gas, such as Hess Corp. and
Chesapeake Energy Corp. These stocks turned in strong performance for the
Russell Midcap Value Index. However, two of our holdings -- Equitable
Resources and Apache Corp. -- were positive contributors relative to the
benchmark.
MATERIALS DETRACTED
The materials sector was another source of relative weakness. We were
underweight in metals and mining stocks, which outperformed the benchmark.
Many of these
Top Ten Holdings as of June 30, 2008
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
iShares S&P MidCap 400 Index Fund 4.8% 3.3%
Kimberly-Clark Corp. 4.3% 2.9%
Bemis Co., Inc. 3.0% 3.1%
Kraft Foods Inc. Cl A 2.5% 1.9%
Portland General Electric Co. 2.3% 2.9%
Beckman Coulter, Inc. 1.9% 1.6%
ConAgra Foods, Inc. 1.8% 2.5%
Marsh & McLennan Companies, Inc. 1.8% 1.5%
People's United Financial, Inc. 1.7% 0.4%
International Speedway Corp. Cl A 1.7% 2.8%
* All fund returns referenced in this commentary are for Class II shares.
Total returns for periods less than one year are not annualized.
** The median return for Morningstar's Mid Cap Value category was -16.13% for
the one-year period ended June 30, 2008. ©2008 Morningstar, Inc. All Rights
Reserved. The information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed; and (3) is
not warranted to be accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or losses arising from any
use of this information.
- ------
5
VP Mid Cap Value
companies have reported strong earnings, which has attracted a large number of
investors. We believe that current earnings are near peak levels and
unsustainable, and have therefore limited the portfolio's exposure.
SECURITY SELECTION ENHANCED RESULTS
The portfolio benefited from superior security selection across a range of
industries. In information technology, a key holding was Diebold, Inc., a
leading provider of automatic teller machines, electronic surveillance and
monitoring equipment and services, and electronic voting machines. During the
period, the company received an unsolicited takeover offer from United
Technology.
In consumer staples, the beverages segment provided a top contributor,
Anheuser-Busch. The leading brewer in the U.S. received an unsolicited
takeover bid from Belgian brewing company InBev. The offer, which would pay a
substantial premium to Anheuser-Busch shareholders, drove up the company's
stock price.
In health care, Universal Health Services, which owns and operates acute-care
hospitals and behavioral health centers throughout the United States,
contributed positively to results. During the first quarter of 2008, the
company reported a 25% increase in quarterly profits, beating investor
expectations. The company has benefited from rising admissions at its more
profitable behavioral health facilities and saw strong admissions growth in
its acute-care hospitals, particularly in one of its core markets, Las Vegas.
In financials, our underweight position also added to relative performance.
The portfolio was underweight in insurance companies and capital markets
firms, and had no exposure to consumer finance names. The financials sector
was also the source of a significant holding, Arthur J. Gallagher & Co. Shares
of the insurance broker rose following the announcement of strong
first-quarter earnings.
OUTLOOK
We continue to follow our disciplined, bottom-up process, selecting companies
one at a time for the portfolio. We see opportunities in consumer staples and
utilities stocks, reflected by our overweight positions in these sectors,
relative to the benchmark. Our fundamental analysis and valuation work is also
directing us toward smaller relative weightings in financials, energy, and
consumer discretionary stocks.
Top Five Industries* as of June 30, 2008
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
Food Products 8.7% 9.9%
Electric Utilities 7.0% 4.7%
Insurance 6.3% 6.7%
Household Products 5.4% 2.9%
Commercial Banks 4.7% 6.9%
*Excludes securities in the Diversified industry category. These securities
represent investments in diversified pools of underlying securities in
multiple industry categories.
Types of Investments in Portfolio
% of % of
net assets net assets
as of as of
6/30/08 12/31/07
Common Stocks 97.2% 98.1%
Cash and Equivalents(1) 2.8% 1.9%
(1) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $908.90 $4.75 1.00%
Class II $1,000 $907.90 $5.46 1.15%
HYPOTHETICAL
Class I $1,000 $1,019.89 $5.02 1.00%
Class II $1,000 $1,019.14 $5.77 1.15%
*Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Mid Cap Value
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 97.2%
AEROSPACE & DEFENSE - 0.4%
23,300 Northrop Grumman Corp. $1,558,771
------------
AIRLINES -- 0.5%
171,385 Southwest Airlines Co. 2,234,860
------------
AUTO COMPONENTS -- 0.9%
79,448 Autoliv, Inc. 3,703,866
------------
AUTOMOBILES -- 1.5%
68,300 Bayerische Motoren Werke AG ORD 3,286,549
322,017 Winnebago Industries, Inc.(1) 3,281,353
------------
6,567,902
------------
BEVERAGES -- 2.4%
60,900 Anheuser-Busch Companies, Inc. 3,783,108
241,200 Coca-Cola Enterprises Inc. 4,172,760
89,500 Pepsi Bottling Group Inc. 2,498,840
------------
10,454,708
------------
BUILDING PRODUCTS -- 0.3%
96,754 Masco Corp. 1,521,940
------------
CAPITAL MARKETS -- 2.3%
81,500 AllianceBernstein Holding L.P. 4,456,420
67,100 Ameriprise Financial Inc. 2,728,957
59,200 Legg Mason, Inc. 2,579,344
------------
9,764,721
------------
CHEMICALS -- 2.6%
56,100 Ecolab Inc. 2,411,739
116,374 International Flavors & Fragrances Inc. 4,545,568
23,601 Minerals Technologies Inc. 1,500,788
61,000 Rohm and Haas Co. 2,832,840
------------
11,290,935
------------
COMMERCIAL BANKS -- 4.7%
209,700 Associated Banc-Corp 4,045,113
93,455 Commerce Bancshares, Inc. 3,706,425
384,221 Marshall & Ilsley Corp. 5,890,108
88,871 SunTrust Banks, Inc. 3,218,908
66,700 United Bankshares, Inc.(1) 1,530,765
56,900 Zions Bancorporation 1,791,781
------------
20,183,100
------------
Shares Value
COMMERCIAL SERVICES & SUPPLIES -- 4.6%
114,200 Avery Dennison Corp. $5,016,807
243,137 HNI Corp.(1) 4,293,799
97,964 Pitney Bowes, Inc. 3,340,572
89,859 Republic Services, Inc. 2,668,812
113,317 Waste Management, Inc. 4,273,184
------------
19,593,174
------------
COMMUNICATIONS EQUIPMENT - 0.8%
309,800 Emulex Corp.(2) 3,609,170
------------
COMPUTERS & PERIPHERALS -- 1.2%
116,632 Diebold, Inc. 4,149,767
74,768 QLogic Corp.(2) 1,090,865
------------
5,240,632
------------
CONTAINERS & PACKAGING - 4.3%
570,526 Bemis Co., Inc. 12,791,193
258,200 Pactiv Corp.(2) 5,481,586
------------
18,272,779
------------
DISTRIBUTORS -- 1.1%
116,379 Genuine Parts Co. 4,617,919
------------
DIVERSIFIED - 4.8%
250,694 iShares S&P MidCap 400 Index Fund(1) 20,431,561
------------
DIVERSIFIED FINANCIAL SERVICES -- 0.8%
81,300 McGraw-Hill Companies, Inc. (The) 3,261,756
------------
ELECTRIC UTILITIES -- 7.0%
275,053 Empire District Electric Co.(1) 5,099,483
186,298 IDACORP, Inc. 5,382,149
444,908 Portland General Electric Co. 10,019,327
257,000 Sierra Pacific Resources 3,266,470
294,800 Westar Energy Inc. 6,341,148
------------
30,108,577
------------
ELECTRICAL EQUIPMENT - 1.3%
134,600 Hubbell Inc. Cl B 5,366,502
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 2.6%
46,170 Littelfuse, Inc.(2) 1,456,664
167,142 Molex Inc. 4,079,936
93,829 Tyco Electronics Ltd. 3,360,955
259,600 Vishay Intertechnology, Inc.(2) 2,302,652
------------
11,200,207
------------
- ------
8
VP Mid Cap Value
Shares Value
FOOD PRODUCTS -- 8.7%
156,300 Campbell Soup Co. $5,229,798
395,165 ConAgra Foods, Inc. 7,618,781
18,208 General Mills, Inc. 1,106,500
31,469 H.J. Heinz Co. 1,505,792
88,861 Hershey Co. (The) 2,912,864
97,700 Kellogg Co. 4,691,554
377,492 Kraft Foods Inc. Cl A 10,739,646
210,378 Maple Leaf Foods Inc. ORD 2,254,787
22,300 Ralcorp Holdings, Inc.(2) 1,102,512
------------
37,162,234
------------
GAS UTILITIES -- 2.0%
73,700 AGL Resources Inc. 2,548,546
124,094 Southwest Gas Corp. 3,689,315
70,615 WGL Holdings Inc. 2,453,165
------------
8,691,026
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 3.4%
119,647 Beckman Coulter, Inc. 8,079,762
89,600 Boston Scientific Corp.(2) 1,101,184
176,309 Symmetry Medical Inc.(2) 2,859,732
37,900 Zimmer Holdings Inc.(2) 2,579,095
------------
14,619,773
------------
HEALTH CARE PROVIDERS & SERVICES -- 0.9%
86,700 LifePoint Hospitals Inc.(2) 2,453,610
24,559 Universal Health Services, Inc. Cl B 1,552,620
------------
4,006,230
------------
HEALTH CARE TECHNOLOGY - 0.4%
70,400 IMS Health Inc. 1,640,320
------------
HOTELS, RESTAURANTS & LEISURE - 3.2%
181,011 International Speedway Corp. Cl A 7,064,859
323,650 Speedway Motorsports Inc. 6,595,987
------------
13,660,846
------------
HOUSEHOLD DURABLES -- 0.7%
46,500 Whirlpool Corp. 2,870,445
------------
HOUSEHOLD PRODUCTS -- 5.4%
90,400 Clorox Co. 4,718,880
309,452 Kimberly-Clark Corp. 18,499,041
------------
23,217,921
------------
INSURANCE - 6.3%
70,999 Allstate Corp. 3,236,844
48,600 Chubb Corp. 2,381,886
133,726 Gallagher (Arthur J.) & Co. 3,222,797
110,691 Genworth Financial Inc. Cl A 1,971,407
Shares Value
50,157 Hartford Financial Services Group Inc. (The) $3,238,637
20,782 HCC Insurance Holdings, Inc. 439,331
222,556 Horace Mann Educators Corp. 3,120,235
13,000 Lincoln National Corp. 589,160
282,917 Marsh & McLennan Companies, Inc. 7,511,446
30,800 Principal Financial Group, Inc. 1,292,676
------------
27,004,419
------------
IT SERVICES -- 0.3%
26,900 Automatic Data Processing, Inc. 1,127,110
------------
LEISURE EQUIPMENT & PRODUCTS -- 0.9%
38,700 Polaris Industries Inc.(1) 1,562,706
126,123 RC2 Corp.(2) 2,340,843
------------
3,903,549
------------
MACHINERY - 1.6%
267,650 Altra Holdings Inc.(2) 4,499,197
22,500 Dover Corp. 1,088,325
23,900 Kaydon Corp. 1,228,699
------------
6,816,221
------------
METALS & MINING - 0.3%
21,500 Newmont Mining Corp. 1,121,440
------------
MULTI-UTILITIES -- 3.7%
79,500 Ameren Corp. 3,357,285
64,200 Consolidated Edison, Inc. 2,509,578
116,965 Puget Energy, Inc. 2,805,990
101,294 Wisconsin Energy Corp. 4,580,515
121,800 Xcel Energy Inc. 2,444,526
------------
15,697,894
------------
MULTILINE RETAIL - 0.4%
80,400 Family Dollar Stores, Inc. 1,603,176
------------
OIL, GAS & CONSUMABLE FUELS -- 2.3%
27,946 Apache Corp. 3,884,494
89,023 Equitable Resources Inc. 6,147,928
------------
10,032,422
------------
PAPER & FOREST PRODUCTS -- 1.8%
163,374 MeadWestvaco Corp. 3,894,836
74,133 Weyerhaeuser Co. 3,791,162
------------
7,685,998
------------
PHARMACEUTICALS -- 1.7%
39,400 Barr Pharmaceuticals Inc.(2) 1,776,152
149,300 Bristol-Myers Squibb Co. 3,065,129
92,946 Watson Pharmaceuticals, Inc.(2) 2,525,343
------------
7,366,624
------------
- ------
9
VP Mid Cap Value
Shares Value
REAL ESTATE INVESTMENT TRUSTS (REITS) - 2.4%
32,600 Boston Properties Inc. $2,941,172
79,700 Host Hotels & Resorts Inc. 1,087,905
19,500 Public Storage Inc. 1,575,405
95,200 Rayonier, Inc. 4,042,192
31,700 Realty Income Corp.(1) 721,492
------------
10,368,166
------------
ROAD & RAIL - 0.5%
140,900 Heartland Express, Inc. 2,100,819
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.0%
74,700 KLA-Tencor Corp. 3,041,037
105,300 Teradyne, Inc.(2) 1,165,671
------------
4,206,708
------------
SOFTWARE - 0.6%
100,809 Synopsys, Inc.(2) 2,410,343
------------
SPECIALTY RETAIL - 1.3%
156,602 Lowe's Companies, Inc. 3,249,492
52,400 Sherwin-Williams Co. 2,406,732
------------
5,656,224
------------
THRIFTS & MORTGAGE FINANCE - 2.4%
472,234 People's United Financial, Inc. 7,366,850
154,100 Washington Federal, Inc. 2,789,210
------------
10,156,060
------------
TRADING COMPANIES & DISTRIBUTORS -- 0.6%
13,200 Grainger (W.W.), Inc. 1,079,760
103,800 Interline Brands Inc.(2) 1,653,534
------------
2,733,294
------------
WATER UTILITIES -- 0.3%
66,865 American Water Works Co., Inc.(2) 1,483,066
------------
TOTAL COMMON STOCKS
(Cost $451,570,875) 416,325,408
------------
Value
Temporary Cash Investments -- 3.1%
Repurchase Agreement, Deutsche Bank Securities,
Inc., (collateralized by various U.S. Treasury
obligations, 3.875%, 1/15/09, valued at
$13,365,208), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery
value $13,100,619)
(Cost $13,100,000) $ 13,100,000
------------
Temporary Cash Investments - Securities
Lending Collateral(3) - 2.7%
Repurchase Agreement, Barclays Capital Inc.,
(collateralized by various U.S. Government
Agency obligations in a pooled account at the
lending agent), 2.50%, dated 6/30/08, due
7/1/08 (Delivery value $3,000,208) 3,000,000
Repurchase Agreement, BNP Paribas Securities
Corp., (collateralized by various U.S.
Government Agency obligations in a pooled
account at the lending agent), 2.45%, dated
6/30/08, due 7/1/08 (Delivery value $3,000,204) 3,000,000
Repurchase Agreement, Deutsche Bank Securities
Inc., (collateralized by various U.S.
Government Agency obligations in a pooled
account at the lending agent), 2.50%, dated
6/30/08, due 7/1/08 (Delivery value $3,000,208) 3,000,000
Repurchase Agreement, UBS Securities LLC,
(collateralized by various U.S. Government
Agency obligations in a pooled account at the
lending agent), 2.65%, dated 6/30/08, due
7/1/08 (Delivery value $2,419,080) 2,418,902
------------
TOTAL TEMPORARY CASH INVESTMENTS - SECURITIES
LENDING COLLATERAL
(Cost $11,418,902) 11,418,902
------------
TOTAL INVESTMENT SECURITIES -- 103.0%
(Cost $476,089,777) 440,844,310
------------
OTHER ASSETS AND LIABILITIES -- (3.0)% (12,674,393)
------------
TOTAL NET ASSETS -- 100.0% $428,169,917
============
- ------
10
VP Mid Cap Value
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
2,180,338 CAD for USD 7/31/08 $3,242,779 $(3,265)
2,061,979 Euro for USD 7/31/08 2,136,958 18,162
---------- ------------
$5,379,737 $14,897
========== ============
(Value on Settlement Date $5,394,634)
Notes to Schedule of Investments
CAD = Canadian Dollar
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Security, or a portion thereof, was on loan as of June 30, 2008.
(2) Non-income producing.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
11
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $464,670,875) - including
$10,727,718 of securities on loan $429,425,408
Investments made with cash collateral received for securities on
loan, at value (cost of $11,418,902) 11,418,902
------------
Total investment securities, at value (cost of $476,089,777) 440,844,310
Cash 366,814
Cash collateral received from securities on loan 18,490
Receivable for investments sold 5,871,225
Receivable for forward foreign currency exchange contracts 18,162
Dividends and interest receivable 901,927
------------
448,020,928
------------
LIABILITIES
Payable for collateral received for securities on loan 11,437,392
Payable for investments purchased 7,987,941
Payable for forward foreign currency exchange contracts 3,265
Accrued management fees 337,095
Distribution fees payable 85,318
------------
19,851,011
------------
NET ASSETS $428,169,917
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $499,615,311
Undistributed net investment income 3,116,178
Accumulated net realized loss on investment and foreign currency
transactions (39,330,729)
Net unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (35,230,843)
------------
$428,169,917
============
CLASS I, $0.01 PAR VALUE
Net assets $34,089,821
Shares outstanding 2,901,669
Net asset value per share $11.75
CLASS II, $0.01 PAR VALUE
Net assets $394,080,096
Shares outstanding 33,544,414
Net asset value per share $11.75
See Notes to Financial Statements.
- ------
12
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $15,966) $ 5,300,322
Interest 112,680
Securities lending, net 152,193
-------------
5,565,195
-------------
EXPENSES:
Management fees 1,939,097
Distribution fees -- Class II 487,351
Directors' fees and expenses 8,374
Other expenses 628
-------------
2,435,450
-------------
NET INVESTMENT INCOME (LOSS) 3,129,745
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (19,821,415)
Foreign currency transactions (445,503)
-------------
(20,266,918)
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (21,713,864)
Translation of assets and liabilities in foreign currencies 4,881
-------------
(21,708,983)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (41,975,901)
-------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(38,846,156)
=============
See Notes to Financial Statements.
- ------
13
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $3,129,745 $2,357,180
Net realized gain (loss) (20,266,918) (18,863,488)
Change in net unrealized appreciation (depreciation) (21,708,983) (15,687,507)
------------ ------------
Net increase (decrease) in net assets
resulting from operations (38,846,156) (32,193,815)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (34,431) (294,185)
Class II (242,404) (1,661,612)
From net realized gains:
Class I -- (436,378)
Class II -- (314,892)
------------ ------------
Decrease in net assets from distributions (276,835) (2,707,067)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 112,239,649 338,283,374
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 73,116,658 303,382,492
NET ASSETS
Beginning of period 355,053,259 51,670,767
------------ ------------
End of period $428,169,917 $355,053,259
============ ============
Undistributed net investment income $3,116,178 $263,268
============ ============
See Notes to Financial Statements.
- ------
14
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Mid Cap Value Fund (the fund) is
one fund in a series issued by the corporation. The fund is diversified under
the 1940 Act. The fund's investment objective is to seek long-term capital
growth. The production of income is a secondary objective. The fund pursues
its objective by investing in stocks of mid-sized market capitalization
companies that management believes to be undervalued at the time of purchase.
The following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I and Class II. The
share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Distributions received on securities that
represent a return of capital or capital gain are recorded as a reduction of
cost of investments and/or as a realized gain. The fund estimates the
components of distributions received that may be considered nontaxable
distributions or capital gain distributions for income tax purposes. Interest
income is recorded on the accrual basis and includes accretion of discounts
and amortization of premiums.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
- ------
15
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For
assets and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose
taxes on the contract amount of purchases and sales of foreign currency
contracts in their currency. The fund records the foreign tax expense, if any,
as a reduction to the net realized gain (loss) on foreign currency
transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. At this time, management has not identified any uncertain tax
positions for which it is reasonably possible that the total amounts of
unrecognized tax benefits will significantly change in the next twelve months.
Accordingly, no provision has been made for federal or state income taxes.
Interest and penalties associated with any federal or state income tax
obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually. The fund may
make distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code, in all events in a manner
consistent with provisions of the 1940 Act.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
As of December 31, 2007, the fund had accumulated net realized capital loss
carryovers for federal income tax purposes of $(1,043,462), which may be used
to offset future taxable gains. The capital loss carryovers expire in 2015.
The fund has elected to treat $(8,018,170) of net capital losses incurred in
the two-month period ended December 31, 2007, as having been incurred in the
following fiscal year for federal income tax purposes.
- ------
16
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. The
effective annual management fee for each class of the fund for the six months
ended June 30, 2008, was 1.00% and 0.90% for Class I and Class II,
respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $443,425,633 and
$333,577,290, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $ 497,191,895
=============
Gross tax appreciation of investments $8,305,193
Gross tax depreciation of investments (64,652,778)
-------------
Net tax appreciation (depreciation) of investments $(56,347,585)
=============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
- ------
17
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended Year ended
June 30, 2008 December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 884,872 $11,046,824 2,034,510 $28,581,513
Issued in
reinvestment of
distributions 2,834 34,431 54,821 730,563
Redeemed (1,080,807) (13,368,121) (1,233,449) (17,153,225)
------------ ------------ ------------ ------------
(193,101) (2,286,866) 855,882 12,158,851
------------ ------------ ------------ ------------
CLASS II/SHARES
AUTHORIZED 100,000,000 100,000,000
============ ============
Sold 10,432,477 129,894,553 23,276,443 333,856,929
Issued in
reinvestment of
distributions 19,951 242,404 151,895 1,976,504
Redeemed (1,236,549) (15,610,442) (691,909) (9,708,910)
------------ ------------ ------------ ------------
9,215,879 114,526,515 22,736,429 326,124,523
------------ ------------ ------------ ------------
Net increase
(decrease) 9,022,778 $112,239,649 23,592,311 $338,283,374
============ ============ ============ ============
5. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $10,727,718 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The total market value of all collateral
received, at this date, was $11,437,392. The fund's risks in securities
lending are that the borrower may not provide additional collateral when
required or return the securities when due. If the borrower defaults, receipt
of the collateral by the fund may be delayed or limited.
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Valuation Inputs Unrealized Gain (Loss)
Value of on
Investment Other Financial
Securities Instruments*
Level 1 -- Quoted Prices $410,784,072 --
Level 2 -- Other Significant
Observable Inputs 30,060,238 $14,897
Level 3 -- Significant Unobservable
Inputs -- --
-------------- -------------
$440,844,310 $14,897
============== =============
*Includes forward foreign currency exchange contracts.
- ------
18
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
19
FINANCIAL HIGHLIGHTS
VP Mid Cap Value
Class I
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning of
Period $12.94 $13.49 $11.70 $11.21 $10.80
------- ------- ------- ------ --------
Income From Investment
Operations
Net Investment
Income (Loss)(3) 0.10 0.18 0.19 0.20 --(4)
Net Realized and
Unrealized Gain (Loss) (1.28) (0.48) 2.16 0.86 0.44
------- ------- ------- ------ --------
Total From
Investment Operations (1.18) (0.30) 2.35 1.06 0.44
------- ------- ------- ------ --------
Distributions
From Net Investment Income (0.01) (0.10) (0.08) (0.10) (0.03)
From Net Realized Gains -- (0.15) (0.48) (0.47) --
------- ------- ------- ------ --------
Total Distributions (0.01) (0.25) (0.56) (0.57) (0.03)
------- ------- ------- ------ --------
Net Asset Value, End of Period $11.75 $12.94 $13.49 $11.70 $11.21
======= ======= ======= ====== ========
TOTAL RETURN(5) (9.11)% (2.31)% 20.30% 9.56% 4.08%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.00%(6) 1.00% 1.00% 1.02% 1.00%(6)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.61%(6) 1.33% 1.50% 1.64% 0.47%(6)
Portfolio Turnover Rate 80% 195% 203% 225% 46%(7)
Net Assets, End of Period (in
thousands) $34,090 $40,056 $30,201 $2,493 $285
(1) Six months ended June 30, 2008 (unaudited).
(2) December 1, 2004 (commencement of sale) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Per-share amount was less than $0.005.
(5) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(6) Annualized.
(7) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the period October 29, 2004 (fund inception) through
December 31, 2004.
See Notes to Financial Statements.
- ------
20
VP Mid Cap Value
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004(2)
PER-SHARE DATA
Net Asset Value, Beginning of
Period $12.95 $13.49 $11.69 $11.21 $10.00
-------- -------- ------- ------ --------
Income From Investment
Operations
Net Investment
Income (Loss)(3) 0.09 0.16 0.16 0.16 0.02
Net Realized and
Unrealized Gain (Loss) (1.28) (0.48) 2.18 0.87 1.22
-------- -------- ------- ------ --------
Total From
Investment Operations (1.19) (0.32) 2.34 1.03 1.24
-------- -------- ------- ------ --------
Distributions
From Net Investment Income (0.01) (0.07) (0.06) (0.08) (0.03)
From Net Realized Gains -- (0.15) (0.48) (0.47) --
-------- -------- ------- ------ --------
Total Distributions (0.01) (0.22) (0.54) (0.55) (0.03)
-------- -------- ------- ------ --------
Net Asset Value,
End of Period $11.75 $12.95 $13.49 $11.69 $11.21
======== ======== ======= ====== ========
TOTAL RETURN(4) (9.21)% (2.43)% 20.23% 9.31% 12.39%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.15%(5) 1.15% 1.15% 1.17% 1.15%(5)
Ratio of Net Investment Income
(Loss) to Average Net Assets 1.46%(5) 1.18% 1.35% 1.49% 0.95%(5)
Portfolio Turnover Rate 80% 195% 203% 225% 46%
Net Assets, End of Period (in
thousands) $394,080 $314,998 $21,470 $6,249 $570
(1) Six months ended June 30, 2008 (unaudited).
(2) October 29, 2004 (fund inception) through December 31, 2004.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
21
APPROVAL OF MANAGEMENT AGREEMENT
VP Mid Cap Value
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Mid Cap Value Fund (the "fund") and
the services provided to the fund under the management agreement. The
information considered and the discussions held at the meetings included, but
were not limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
22
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based
on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES - GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
- ------
23
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the advisor. If performance concerns are identified, the Directors
discuss with the advisor the reasons for such results (e.g., market
conditions, security selection) and any efforts being undertaken to improve
performance. The fund's performance was above the median for its peer group
for the three-year period and below the median for the one-year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
- ------
24
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group. The board concluded that the management fee paid by the
fund to the advisor was reasonable in light of the services provided to the
fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
- ------
25
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
26
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
27
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
- ------
28
[blank page]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution
to prospective investors unless preceded or accompanied by an effective
prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61150
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP ULTRA® FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP ULTRA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
OTHER INFORMATION
Approval of Management Agreement for VP Ultra . . . . . . . . . . . . 22
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 27
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 28
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
* Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Ultra
Total Returns as of June 30, 2008
Average Annual
Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS I -13.28% -1.90% 5.14% 0.76% 5/1/01
RUSSELL 1000 GROWTH
INDEX(2) -9.06% -5.96% 7.32% 0.24% --
S&P 500 INDEX(2) -11.91% -13.12% 7.58% 1.95% --
Class II -13.40% -2.11% 4.98% 2.16% 5/1/02
Class III -13.29% -1.90% 5.14% 2.47% 5/13/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
3
VP Ultra
Growth of $10,000 Over Life of Class
$10,000 investment made May 1, 2001
One-Year Returns Over Life of Class
Periods ended June 30
2001* 2002 2003 2004 2005 2006 2007 2008
Class I 1.20% -17.36% -1.74% 17.56% 1.14% 0.00% 10.15% -1.90%
Russell 1000
Growth Index -5.59% -26.49% 2.94% 17.88% 1.68% 6.12% 19.04% -5.96%
S&P 500 Index -3.10% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59% -13.12%
* From 5/1/01, Class I's inception date. Not annualized.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
International investing involves special risks, such as political instability
and currency fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
4
PORTFOLIO COMMENTARY
VP Ultra
Portfolio Managers: Tom Telford and Steve Lurito
PERFORMANCE SUMMARY
VP Ultra returned -13.28%* in the first half of 2008, trailing the -9.06%
return of its benchmark, the Russell 1000 Growth Index. The S&P 500 Index, a
broad measure of the stock market, returned -11.91%.
The six-month period was a challenging one for both the overall equity market
and the fund as economic and market conditions changed dramatically. The
factors that helped VP Ultra outperform the Russell 1000 Growth Index by a
wide margin in 2007 reversed in early 2008 as momentum stocks fell out of
favor, market volatility increased, and the leading sectors from 2007 became
the worst performers in the first quarter of 2008. Although momentum stocks
rebounded in the second quarter of the year, the fund's larger market
capitalization compared with the index was a drag on relative results as
small- and mid-cap issues outperformed.
Given these headwinds, the fund held up reasonably well compared with its
benchmark and the broad market indexes. We believe that the improvements to
our investment process implemented over the past two years helped the fund
weather the difficult investment environment.
TECHNOLOGY DETRACTED
The bulk of the fund's underperformance during the six-month period resulted
from stock selection in the information technology sector. In particular,
security selection among semiconductor manufacturers and software makers
detracted the most from relative results.
The most significant individual detractor was online advertising and search
company Google, which was one of the fund's largest holdings during the
period. Google reported disappointing earnings in early 2008, which led to
concerns that the economic slowdown was having a detrimental impact on
internet advertising. However, online advertising is still the fastest-growing
segment of the ad industry, and Google regained some of its lost ground in the
second quarter after a solid earnings report as the company continued to
increase its market share.
Silicon wafer manufacturer MEMC Electronic Materials was another notable
detractor. MEMC reported lower-than-expected earnings as technical problems at
one of its production plants hurt revenues and profit margins.
Top Ten Holdings as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Apple Inc. 3.7% 3.2%
Cisco Systems Inc. 3.2% 3.3%
Wal-Mart Stores, Inc. 3.1% --
Google Inc. Cl A 2.3% 4.5%
QUALCOMM Inc. 2.2% --
Union Pacific Corp. 2.2% --
Emerson Electric Co. 2.0% 1.9%
Intel Corp. 2.0% 3.2%
Monsanto Co. 1.9% 1.7%
MEMC Electronic Materials Inc. 1.8% 1.4%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Ultra
FINANCIALS WEIGHED ON RESULTS
The portfolio's financials stocks were also a drag on performance relative to
the benchmark index. An overweight in capital markets firms and stock
selection among financial services companies had the biggest negative impact.
Investment managers Invesco and Charles Schwab were the biggest detractors in
this sector. Invesco experienced declining assets under management amid net
outflows and the global equity market downturn, while Charles Schwab suffered
losses from subprime-related structured investment vehicles.
ENERGY AND MATERIALS OUTPERFORMED
Stock selection and an overweight in energy--the best-performing sector in the
benchmark index--added value to relative performance during the period. In
2007, we built positions in a number of energy companies that focused on
natural gas, for several reasons: (1) a wide differential between oil and
natural gas prices, (2) accelerating production as more natural gas reserves
were discovered, and (3) an increase in the development of new natural-gas
power plants.
This approach proved successful as four of the top ten relative performance
contributors were energy stocks with an emphasis on natural gas, including XTO
Energy, Apache, EOG Resources, and Noble Energy.
Stock selection also contributed positively to relative results in the
materials sector, particularly among chemicals companies. Monsanto, the
leading producer of corn and soybean seeds, was the top contributor in this
sector. As corn and soybean prices soared, increased planting led to strong
demand for the seeds, boosting revenues and earnings at Monsanto.
A LOOK AHEAD
The recent market volatility created some challenges for our investment
approach. However, we remain confident that our process of identifying large
companies with improving business fundamentals, accelerating growth, and price
momentum will generate outperformance over the long term compared with the
Russell 1000 Growth Index.
Top Five Industries as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Communications Equipment 8.7% 5.4%
Oil, Gas & Consumable Fuels 8.5% 3.9%
Semiconductors &
Semiconductor Equipment 7.2% 5.9%
Energy Equipment & Services 4.6% 5.0%
Food & Staples Retailing 4.4% 1.0%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Domestic Common Stocks 91.5% 87.1%
Foreign Common Stocks(1) 8.0% 11.8%
TOTAL COMMON STOCKS 99.5% 98.9%
Temporary Cash Investments 2.4% 1.9%
Other Assets and Liabilities(2) (1.9)% (0.8)%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes securities lending collateral and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $867.20 $4.64 1.00%
Class II $1,000 $866.00 $5.34 1.15%
Class III $1,000 $867.10 $4.64 1.00%
HYPOTHETICAL
Class I $1,000 $1,019.89 $5.02 1.00%
Class II $1,000 $1,019.14 $5.77 1.15%
Class III $1,000 $1,019.89 $5.02 1.00%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Ultra
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 99.5%
AEROSPACE & DEFENSE -- 3.6%
53,260 Lockheed Martin Corp. $ 5,254,632
94,200 Raytheon Co. 5,301,576
27,440 United Technologies Corp. 1,693,048
------------
12,249,256
------------
BEVERAGES -- 3.1%
102,710 Coca-Cola Co. (The) 5,338,866
83,700 PepsiCo, Inc. 5,322,483
------------
10,661,349
------------
BIOTECHNOLOGY -- 3.8%
45,200 Celgene Corp.(1) 2,886,924
67,810 Genzyme Corp.(1) 4,883,676
98,900 Gilead Sciences, Inc.(1) 5,236,755
------------
13,007,355
------------
CAPITAL MARKETS -- 4.1%
87,440 Bank of New York Mellon Corp. (The) 3,307,855
234,780 Charles Schwab Corp. (The) 4,822,382
25,430 Goldman Sachs Group, Inc. (The) 4,447,707
46,160 Morgan Stanley 1,664,991
------------
14,242,935
------------
CHEMICALS -- 3.8%
92,980 Celanese Corp., Series A 4,245,467
50,770 Monsanto Co. 6,419,359
7,120 Syngenta AG ORD 2,319,349
------------
12,984,175
------------
COMMUNICATIONS EQUIPMENT -- 8.7%
466,204 Cisco Systems Inc.(1) 10,843,904
263,876 Corning Inc. 6,082,342
173,000 QUALCOMM Inc. 7,676,010
43,700 Research In Motion Ltd.(1) 5,108,530
------------
29,710,786
------------
COMPUTERS & PERIPHERALS -- 3.7%
76,020 Apple Inc.(1) 12,728,789
------------
CONSTRUCTION & ENGINEERING -- 1.4%
25,130 Fluor Corp. 4,676,190
------------
CONSUMER FINANCE -- 0.1%
34,732 Discover Financial Services 457,420
------------
DIVERSIFIED FINANCIAL SERVICES -- 0.5%
46,560 JPMorgan Chase & Co. 1,597,474
------------
Shares Value
ELECTRICAL EQUIPMENT -- 2.9%
101,730 ABB Ltd. ORD(1) $ 2,898,450
142,322 Emerson Electric Co. 7,037,823
------------
9,936,273
------------
ENERGY EQUIPMENT & SERVICES -- 4.6%
35,040 ENSCO International Inc. 2,829,130
41,960 National Oilwell Varco, Inc.(1) 3,722,691
41,170 Schlumberger Ltd. 4,422,893
32,061 Transocean Inc.(1) 4,885,776
------------
15,860,490
------------
FOOD & STAPLES RETAILING -- 4.4%
62,383 Costco Wholesale Corp. 4,375,544
190,420 Wal-Mart Stores, Inc. 10,701,604
------------
15,077,148
------------
FOOD PRODUCTS -- 1.3%
99,300 Nestle SA ORD 4,494,032
------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 3.7%
61,510 Baxter International Inc. 3,932,949
44,800 Becton, Dickinson & Co. 3,642,240
100,250 Medtronic, Inc. 5,187,938
------------
12,763,127
------------
HEALTH CARE PROVIDERS & SERVICES -- 2.1%
54,790 Express Scripts, Inc.(1) 3,436,429
79,860 Medco Health Solutions Inc.(1) 3,769,392
------------
7,205,821
------------
HOTELS, RESTAURANTS & LEISURE -- 2.3%
94,590 McDonald's Corp. 5,317,850
74,510 Yum! Brands, Inc. 2,614,556
------------
7,932,406
------------
HOUSEHOLD PRODUCTS -- 1.2%
38,810 Colgate-Palmolive Co. 2,681,771
26,140 Procter & Gamble Co. (The) 1,589,573
------------
4,271,344
------------
INSURANCE -- 1.0%
55,379 Aflac Inc. 3,477,801
------------
INTERNET SOFTWARE & SERVICES -- 2.3%
15,222 Google Inc. Cl A(1) 8,013,165
------------
IT SERVICES -- 1.3%
172,990 Western Union Co. (The) 4,276,313
------------
LIFE SCIENCES TOOLS & SERVICES -- 0.8%
48,360 Thermo Fisher Scientific Inc.(1) 2,695,103
------------
- ------
8
VP Ultra
Shares Value
MACHINERY -- 4.1%
54,990 Caterpillar Inc. $ 4,059,362
59,680 Eaton Corp. 5,071,010
69,860 Parker-Hannifin Corp. 4,982,415
------------
14,112,787
------------
MEDIA -- 1.0%
108,160 Walt Disney Co. (The) 3,374,592
------------
METALS & MINING -- 3.4%
45,150 Alcoa Inc. 1,608,243
49,250 BHP Billiton Ltd. ORD 2,063,231
45,260 Cia Vale do Rio Doce ADR 1,621,213
35,730 Freeport-McMoRan Copper & Gold, Inc. 4,187,198
17,220 Rio Tinto plc ORD 2,062,774
------------
11,542,659
------------
MULTILINE RETAIL -- 1.2%
42,830 Kohl's Corp.(1) 1,714,913
81,360 Nordstrom, Inc. 2,465,208
------------
4,180,121
------------
OIL, GAS & CONSUMABLE FUELS -- 8.5%
20,990 Apache Corp. 2,917,610
60,570 Chevron Corp. 6,004,303
11,790 EOG Resources Inc. 1,546,848
26,500 Hess Corp. 3,344,035
38,160 Noble Energy Inc. 3,837,370
39,910 Occidental Petroleum Corp. 3,586,313
34,870 Range Resources Corporation 2,285,380
81,447 XTO Energy Inc. 5,579,933
------------
29,101,792
------------
PHARMACEUTICALS -- 2.1%
69,789 Abbott Laboratories 3,696,723
55,290 Johnson & Johnson 3,557,359
------------
7,254,082
------------
ROAD & RAIL -- 2.2%
98,550 Union Pacific Corp. 7,440,525
------------
Shares Value
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 7.2%
204,180 Altera Corp. $ 4,226,526
98,452 ASML Holding N.V. ORD 2,426,873
314,142 Intel Corp. 6,747,770
99,130 MEMC Electronic Materials Inc.(1) 6,100,460
78,230 Microchip Technology Inc. 2,389,144
82,120 Varian Semiconductor Equipment Associates, Inc.(1) 2,859,418
------------
24,750,191
------------
SOFTWARE -- 3.2%
111,320 Adobe Systems Inc.(1) 4,384,895
154,910 Microsoft Corp. 4,261,574
35,029 salesfore.com, inc. (1) 2,390,029
------------
11,036,498
------------
SPECIALTY RETAIL -- 2.3%
186,050 Staples, Inc. 4,418,687
112,140 TJX Companies, Inc. (The) 3,529,046
------------
7,947,733
------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.3%
75,350 NIKE, Inc. Cl B 4,491,614
------------
TOBACCO -- 1.5%
105,920 Philip Morris International Inc. 5,231,389
------------
TRADING COMPANIES & DISTRIBUTORS -- 0.8%
33,160 Grainger (W.W.), Inc. 2,712,488
------------
TOTAL COMMON STOCKS
(Cost $315,347,084) 341,495,223
------------
Temporary Cash Investments -- 2.4%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $8,570,057), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery value $8,400,397) (Cost
$8,400,000) 8,400,000
------------
TOTAL INVESTMENT SECURITIES -- 101.9%
(Cost $323,747,084) 349,895,223
------------
OTHER ASSETS AND LIABILITIES -- (1.9)% (6,541,324)
------------
TOTAL NET ASSETS -- 100.0% $343,353,899
============
- ------
9
VP Ultra
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
1,092,125 AUD for USD 7/31/08 $1,042,511 $ (1,311)
4,896,611 CHF for USD 7/31/08 4,802,673 (34,797)
756,604 Euro for USD 7/31/08 1,189,877 (1,172)
737,949 GBP for USD 7/31/08 1,467,633 (3,449)
---------- ---------
$8,502,694 $(40,729)
========== =========
(Value on Settlement Date $8,461,965)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
CHF = Swiss Franc
GBP = British Pound
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $323,747,084) $349,895,223
Receivable for investments sold 15,781,946
Dividends and interest receivable 234,259
------------
365,911,428
------------
LIABILITIES
Disbursements in excess of demand deposit cash 4,067,056
Payable for investments purchased 18,115,912
Payable for forward foreign currency exchange contracts 40,729
Accrued management fees 275,334
Distribution fees payable 58,498
------------
22,557,529
------------
NET ASSETS $343,353,899
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $318,691,174
Undistributed net investment income 413,986
Accumulated net realized loss on investment and foreign currency
transactions (1,858,579)
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 26,107,318
------------
$343,353,899
============
CLASS I, $0.01 PAR VALUE
Net assets $70,707,569
Shares outstanding 7,874,172
Net asset value per share $8.98
CLASS II, $0.01 PAR VALUE
Net assets $271,582,794
Shares outstanding 30,546,878
Net asset value per share $8.89
CLASS III, $0.01 PAR VALUE
Net assets $1,063,536
Shares outstanding 118,603
Net asset value per share $8.97
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $44,652) $ 2,261,910
Interest 83,745
Securities lending, net 32,944
-------------
2,378,599
-------------
EXPENSES:
Management fees 1,687,557
Distribution fees -- Class II 354,368
Directors' fees and expenses 7,045
Other expenses 722
-------------
2,049,692
-------------
NET INVESTMENT INCOME (LOSS) 328,907
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions 442,256
Foreign currency transactions (865,319)
-------------
(423,063)
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (55,148,650)
Translation of assets and liabilities in foreign currencies 46,487
-------------
(55,102,163)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (55,525,226)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(55,196,319)
=============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 328,907 $ 1,042,359
Net realized gain (loss) (423,063) 100,415,710
Change in net unrealized appreciation
(depreciation) (55,102,163) 13,938,840
------------ -------------
Net increase (decrease) in net assets resulting
from operations (55,196,319) 115,396,909
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains:
Class I (11,250,838) --
Class II (41,070,238) --
Class III (188,148) --
------------ -------------
Decrease in net assets from distributions (52,509,224) --
------------ -------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions 34,369,528 (328,962,453)
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS (73,336,015) (213,565,544)
NET ASSETS
Beginning of period 416,689,914 630,255,458
------------ -------------
End of period $343,353,899 $ 416,689,914
============ =============
Undistributed net investment income $413,986 $85,079
============ =============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Ultra Fund (the fund) is one fund
in a series issued by the corporation. The fund is diversified under the 1940
Act. The fund's investment objective is to seek long-term capital growth. The
fund pursues its objective by investing primarily in equity securities of
large companies that management believes will increase in value over time. The
following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II and Class
III. The share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For
assets and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
- ------
14
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose
taxes on the contract amount of purchases and sales of foreign currency
contracts in their currency. The fund records the foreign tax expense, if any,
as a reduction to the net realized gain (loss) on foreign currency
transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
- ------
15
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee
is retained by the fund and helps cover transaction costs that long-term
investors may bear when a fund sells securities to meet investor redemptions.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. For funds
with a stepped fee schedule, the rate of the fee is determined by applying a
fee rate calculation formula. This formula takes into account all of the
investment advisor's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of
the investment advisor that are not in the American Century Investments family
of funds, but that have the same investment team and investment strategy. The
annual management fee schedule for each class of the fund ranges from 0.80% to
1.00% for Class I and Class III and from 0.70% to 0.90% for Class II. The
effective annual management fee for each class of the fund for the six months
ended June 30, 2008 was 1.00%, 0.90% and 1.00% for Class I, Class II and Class
III, respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
- ------
16
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $308,535,660 and
$324,073,351, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $325,346,675
============
Gross tax appreciation of investments $ 35,678,003
Gross tax depreciation of investments (11,129,455)
------------
Net tax appreciation (depreciation) of investments $ 24,548,548
============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30,
2008 Year ended December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 100,000,000 100,000,000
=========== ============
Sold 1,743,234 $ 16,600,265 4,959,745 $ 54,625,212
Issued in
reinvestment of
distributions 1,257,077 11,250,838 -- --
Redeemed (3,584,637) (35,623,817) (6,889,116) (76,058,014)
----------- -------------- ------------ --------------
(584,326) (7,772,714) (1,929,371) (21,432,802)
----------- -------------- ------------ --------------
CLASS II/SHARES
AUTHORIZED 150,000,000 150,000,000
=========== ============
Sold 2,998,707 30,096,043 16,502,607 172,468,786
Issued in
reinvestment of
distributions 4,630,241 41,070,238 -- --
Redeemed (2,907,132) (28,214,564) (43,193,701) (480,006,336)
----------- -------------- ------------ --------------
4,721,816 42,951,717 (26,691,094) (307,537,550)
----------- -------------- ------------ --------------
CLASS III/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ============
Sold 14,300 151,709 155,812 1,743,355
Issued in
reinvestment of
distributions 21,046 188,148 -- --
Redeemed (111,371) (1,149,332)(1) (158,640) (1,735,456)(2)
----------- -------------- ------------ --------------
(76,025) (809,475) (2,828) 7,899
----------- -------------- ------------ --------------
Net increase
(decrease) 4,061,465 $ 34,369,528 (28,623,293) $(328,962,453)
=========== ============== ============ ==============
(1) Net of redemption fees of $598.
(2) Net of redemption fees of $511.
5. SECURITIES LENDING
As of June 30, 2008, the fund did not have any securities on loan. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The fund's risks in securities lending are
that the borrower may not provide additional collateral when required or
return the securities when due. If the borrower defaults, receipt of the
collateral by the fund may be delayed or limited.
- ------
17
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Unrealized Gain (Loss)
Value of on
Investment Other Financial
Valuation Inputs Securities Instruments*
Level 1 -- Quoted Prices $325,230,514 --
Level 2 -- Other Significant
Observable Inputs 24,664,709 $(40,729)
Level 3 -- Significant Unobservable
Inputs -- --
------------ ---------
$349,895,223 $(40,729)
============ =========
*Includes forward foreign currency exchange contracts.
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
8. RISK FACTORS
There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political, social, and
economic developments, fluctuations in currency exchange rates, the possible
imposition of exchange controls, and other foreign laws or restrictions.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
18
FINANCIAL HIGHLIGHTS
VP Ultra
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $12.15 $10.04 $10.38 $10.16 $9.18 $7.35
------ ------ ------ ------ ------ -----
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.01 0.05 (0.01) (0.01) --(3) (0.01)
Net Realized
and Unrealized
Gain (Loss) (1.63) 2.06 (0.33) 0.22 0.98 1.84
------ ------ ------ ------ ------ -----
Total From
Investment
Operations (1.62) 2.11 (0.34) 0.21 0.98 1.83
------ ------ ------ ------ ------ -----
Distributions
From Net
Realized Gain (1.55) -- -- -- -- --
------ ------ ------ ------ ------ -----
Redemption Fees(2) --(3) --(3) --(3) 0.01 --(3) --(3)
------ ------ ------ ------ ------ -----
Net Asset Value,
End of Period $8.98 $12.15 $10.04 $10.38 $10.16 $9.18
====== ====== ====== ====== ====== =====
TOTAL RETURN(4) (13.28)% 21.02% (3.28)% 2.17% 10.68% 24.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 1.00%(5) 1.01% 1.00% 1.01% 1.00% 1.01%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 0.30%(5) 0.30% (0.06)% (0.08)% 0.05% (0.15)%
Portfolio Turnover
Rate 86% 137% 118% 58% 45% 111%
Net Assets, End of
Period (in
thousands) $70,708 $102,789 $104,270 $105,560 $79,489 $63,364
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
19
VP Ultra
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $12.06 $9.98 $10.33 $10.13 $9.16 $7.34
------ ------ ------ ------ ------ -----
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.01 0.01 (0.02) (0.02) --(3) (0.03)
Net Realized
and Unrealized
Gain (Loss) (1.63) 2.07 (0.33) 0.21 0.97 1.85
------ ------ ------ ------ ------ -----
Total From
Investment
Operations (1.62) 2.08 (0.35) 0.19 0.97 1.82
------ ------ ------ ------ ------ -----
Distributions
From Net
Realized Gains (1.55) -- -- -- -- --
------ ------ ------ ------ ------ -----
Redemption Fees(2) --(3) --(3) --(3) 0.01 --(3) --(3)
------ ------ ------ ------ ------ -----
Net Asset Value,
End of Period $8.89 $12.06 $9.98 $10.33 $10.13 $9.16
====== ====== ====== ====== ====== =====
TOTAL RETURN(4) (13.40)% 20.84% (3.39)% 1.97% 10.59% 24.80%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to
Average Net Assets 1.15%(5) 1.16% 1.15% 1.16% 1.15% 1.16%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets 0.15%(5) 0.15% (0.21)% (0.23)% (0.10)% (0.30)%
Portfolio Turnover
Rate 86% 137% 118% 58% 45% 111%
Net Assets, End of
Period (in
thousands) $271,583 $311,537 $524,005 $213,594 $91,984 $26,831
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
20
VP Ultra
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $12.14 $10.03 $10.37 $10.15 $9.17 $7.34
------ ------ ------ ------ ------ -----
Income From Investment
Operations
Net Investment
Income (Loss)(2) 0.01 0.06 (0.01) --(3) 0.01 (0.02)
Net Realized and
Unrealized Gain
(Loss) (1.63) 2.05 (0.33) 0.21 0.97 1.85
------ ------ ------ ------ ------ -----
Total From
Investment
Operations (1.62) 2.11 (0.34) 0.21 0.98 1.83
------ ------ ------ ------ ------ -----
Distributions
From Net Realized
Gains (1.55) -- -- -- -- --
------ ------ ------ ------ ------ -----
Redemption Fees(2) --(3) --(3) --(3) 0.01 --(3) --(3)
------ ------ ------ ------ ------ -----
Net Asset Value, End of
Period $8.97 $12.14 $10.03 $10.37 $10.15 $9.17
====== ====== ====== ====== ====== =====
TOTAL RETURN(4) (13.29)% 21.04% (3.28)% 2.17% 10.69% 24.93%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses to Average Net
Assets 1.00%(5) 1.01% 1.00% 1.01% 1.00% 1.01%
Ratio of Net Investment
Income (Loss) to
Average Net Assets 0.30%(5) 0.30% (0.06)% (0.08)% 0.05% (0.15)%
Portfolio Turnover Rate 86% 137% 118% 58% 45% 111%
Net Assets, End of
Period (in thousands) $1,064 $2,364 $1,980 $3,098 $966 $339
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Per-share amount was less than $0.005.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
See Notes to Financial Statements.
- ------
21
APPROVAL OF MANAGEMENT AGREEMENT
VP Ultra
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Ultra Fund (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
22
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based
on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems
- ------
23
to conduct their business. At each quarterly meeting the Directors review
investment performance information for the fund, together with comparative
information for appropriate benchmarks and peer groups of funds managed
similarly to the fund. The Directors also review detailed performance
information during the 15(c) Process comparing the fund's performance with
that of similar funds not managed by the advisor. If performance concerns are
identified, the Directors discuss with the advisor the reasons for such
results (e.g., market conditions, security selection) and any efforts being
undertaken to improve performance. The fund's performance was above the median
for its peer group for the one-year period and below the median for the three
year period.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
24
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was above the median of the total expense ratios
of its peer group. The board concluded that the management fee paid by the
fund to the advisor was reasonable in light of the services provided to the
fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
- ------
25
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, assisted by the advice of legal counsel independent of the advisor,
taking into account all of the factors discussed above and the information
provided by the advisor, negotiated changes to the breakpoint schedule used to
calculate the management fee. These changes were proposed by the Directors
based on their review of the competitive changes in the mutual fund
marketplace and their review of financial information provided by the advisor.
The new schedule, effective August 1, 2008, contains lower management fees at
certain asset levels than under the existing structure. Following these
negotiations with the advisor, the independent directors concluded that the
investment management agreement between the fund and the advisor is fair and
reasonable in light of the services provided and should be renewed.
- ------
26
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
27
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure of
U.S. stock market performance.
- ------
28
[back cover]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61146
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP VALUE FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP VALUE
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
OTHER INFORMATION
Approval of Management Agreement for VP Value . . . . . . . . . . . . 22
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 26
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of chief investment officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of nearly $140 a barrel, while the materials sector benefited from
rising commodity prices. The financials sector sustained the largest losses,
plunging by nearly 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
*Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Value
Total Returns as of June 30, 2008
Average Annual Returns
Since Inception
6 months(1) 1 year 5 years 10 years Inception Date
CLASS I -13.01% -22.45% 6.73% 5.65% 8.16% 5/1/96
RUSSELL 3000
VALUE INDEX(2) -13.28% -19.02% 8.99% 5.07% 8.89% --
S&P 500
INDEX(2) -11.91% -13.12% 7.58% 2.88% 7.45% --
LIPPER
MULTI-CAP
VALUE
INDEX(2) -12.64% -19.23% 7.64% 4.47% 7.53% --
Class II -13.04% -22.59% 6.59% -- 4.54% 8/14/01
Class III -13.01% -22.45% 6.73% -- 4.88% 5/6/02
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
3
VP Value
Growth of $10,000 Over 10 Years
$10,000 investment made June 30, 1998
One-Year Returns Over 10 Years
Periods ended June 30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Class I 11.98% -15.88% 31.94% 1.12% -0.49% 25.20% 8.08% 7.77% 22.54% -22.45%
Russell
3000
Value
Index 14.39% -8.38% 11.64% -7.75% -1.23% 22.14% 14.09% 12.32% 21.33% -19.02%
S&P 500
Index 22.76% 7.25% -14.83% -17.99% 0.25% 19.11% 6.32% 8.63% 20.59% -13.12%
Lipper
Multi-
Cap
Value
Index 9.61% -6.66% 15.14% -10.89% 2.13% 22.22% 10.95% 9.79% 20.17% -19.23%
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the indices
are provided for comparison. The fund's total returns include operating
expenses (such as transaction costs and management fees) that reduce returns,
while the total returns of the indices do not.
- ------
4
PORTFOLIO COMMENTARY
VP Value
Portfolio Managers: Scott Moore, Michael Liss, and Phil Davidson
PERFORMANCE SUMMARY
VP Value returned -13.01%* for the six months ended June 30, 2008. By
comparison, its benchmark, the Russell 3000 Value Index, returned -13.28%. The
Lipper Multi-Cap Value Index returned -12.64% while the median return for
Morningstar's Large Cap Value category (whose performance, like VP Value's,
reflects fund operating expenses) was -13.67%**. The broader market, as
measured by the S&P 500 Index, returned -11.91%. (The portfolio's returns
reflect fund operating expenses, while the indices' returns do not.)
VP Value's performance for the period was hampered by the volatile,
challenging market environment described in the Market Perspective on page 2.
Although both growth and value indices were negative, growth stocks
outperformed value across the capitalization spectrum. In addition, for much
of the period, investors favored companies that were already strong
performers, a momentum bias that did not fit well with the portfolio's
investment approach of seeking stocks that are undervalued by the market.
Nevertheless, we continue to emphasize less-risky businesses with sound
balance sheets. The portfolio benefited the most from its underweight in the
financials sector and its mix of consumer staples and information technology
stocks. Our underweight position in energy and materials relative to the
benchmark detracted from performance.
FINANCIALS ENHANCED PERFORMANCE
The portfolio's underweight in financials -- which was the weakest performing
sector in the benchmark -- added to relative results. Every group in the
sector declined over the period. In particular, VP Value benefited from its
underweight position in diversified financial services companies, thrifts and
mortgage finance firms, and capital markets names. Nevertheless, the sector
was the source of two detractors, American International Group (AIG), the
leading U.S.-based international insurer, and Marshall & Ilsley, a
Milwaukee-based bank. AIG's stock reacted to wider credit losses and the
issuance of a substantial number of new shares. Marshall & Ilsley reported a
second-quarter loss as a result of write-offs related to the deteriorating
housing market.
CONSUMER STAPLES HOLDINGS ADDED VALUE
An overweight in consumer staples companies benefited performance as the U.S.
economy slowed and investors sought out companies that provide everyday goods
Top Ten Holdings as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
General Electric Co. 5.5% 4.5%
Exxon Mobil Corp. 5.1% 3.2%
Kimberly-Clark Corp. 4.5% 2.8%
Kraft Foods Inc. Cl A 4.0% 3.5%
AT&T Inc. 3.6% 3.1%
BP plc ADR 3.1% 2.9%
Bemis Co., Inc. 2.9% 3.0%
Johnson & Johnson 2.5% 1.9%
Pfizer Inc. 2.0% 2.5%
American International Group, Inc. 1.9% 1.9%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
** The median returns for Morningstar's Large Cap Value category were -18.10%,
7.45% and 4.05% for the one-, five- and ten-year periods ended June 30, 2008,
respectively. ©2008 Morningstar, Inc. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted to
be accurate, complete or timely. Neither Morningstar nor its content providers
are responsible for any damages or losses arising from any use of this
information.
- ------
5
VP Value
and services. The portfolio's basket of packaged food companies contributed
positively. A key performer was H.J. Heinz, which has streamlined its suite of
products and reported strong sales of its top brands during the period.
The beverages segment provided a top contributor -- Anheuser-Busch, the
leading brewer in the U.S. Anheuser-Busch received an unsolicited takeover bid
from Belgian brewing company InBev. The offer, which would pay a substantial
premium to Anheuser-Busch shareholders, drove up the company's stock price.
INFORMATION TECHNOLOGY CONTRIBUTED
In the information technology sector, superior security selection resulted in
outperformance relative to the benchmark. A significant holding was Diebold,
Inc., a leading provider of automatic teller machines, electronic surveillance
and monitoring equipment and services, and electronic voting machines. During
the period, the company received an unsolicited takeover offer from United
Technology.
ENERGY HAMPERED PROGRESS
The portfolio's underweight position in the energy sector hurt relative
results. Energy was up 9.5% for the benchmark, one of only two sectors
(materials was the other) with positive total returns. Because of valuations,
we were underweight in companies engaged in the exploration and production of
oil and natural gas. However, two of our holdings -- BP plc and Total SA --
were positive contributors relative to the benchmark.
MATERIALS DETRACTED
The materials sector was another source of relative weakness. We were
underweight in metals and mining stocks, which outperformed the benchmark.
Many of these companies reported strong earnings, which attracted a large
number of investors. We believe that current earnings are near peak levels and
unsustainable, and have therefore limited the portfolio's exposure.
OUTLOOK
We will continue to follow our disciplined, bottom-up process, selecting
securities one at a time for the portfolio. We see opportunities in consumer
staples and industrials companies, reflected by our overweight positions in
these sectors relative to the benchmark. Our fundamental analysis and
valuation work is also directing us toward smaller weightings in financials
and energy stocks.
Top Five Industries as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Oil, Gas & Consumable Fuels 10.8% 7.6%
Food Products 9.9% 9.9%
Pharmaceuticals 7.1% 5.9%
Industrial Conglomerates 6.3% 5.1%
Insurance 6.2% 6.1%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Domestic Common Stocks 88.2% 92.6%
Foreign Common Stocks(1) 8.3% 7.1%
TOTAL COMMON STOCKS 96.5% 99.7%
Cash and Equivalents(2) 3.5% 0.3%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments, securities lending collateral and
other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending
Account Account Expenses Paid
Value Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $869.90 $4.42 0.95%
Class II $1,000 $869.60 $5.11 1.10%
Class III $1,000 $869.90 $4.42 0.95%
HYPOTHETICAL
Class I $1,000 $1,020.14 $4.77 0.95%
Class II $1,000 $1,019.39 $5.52 1.10%
Class III $1,000 $1,020.14 $4.77 0.95%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Value
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 96.5%
AEROSPACE & DEFENSE -- 0.3%
89,940 Northrop Grumman Corp. $ 6,016,987
--------------
AIR FREIGHT & LOGISTICS -- 1.0%
259,740 United Parcel Service, Inc. Cl B 15,966,218
--------------
AIRLINES -- 0.4%
548,510 Southwest Airlines Co. 7,152,570
--------------
AUTO COMPONENTS -- 0.7%
268,650 Autoliv, Inc. 12,524,463
--------------
AUTOMOBILES -- 1.8%
161,500 Honda Motor Co., Ltd. ORD(1) 5,498,585
185,450 Thor Industries Inc.(1) 3,942,667
441,600 Toyota Motor Corp. ORD 20,865,944
--------------
30,307,196
--------------
BEVERAGES -- 1.4%
232,710 Anheuser-Busch Companies, Inc. 14,455,945
138,800 PepsiCo, Inc. 8,826,292
--------------
23,282,237
--------------
BIOTECHNOLOGY -- 0.8%
271,400 Amgen Inc.(2) 12,799,224
--------------
BUILDING PRODUCTS -- 0.3%
271,940 Masco Corp. 4,277,616
--------------
CAPITAL MARKETS -- 2.4%
285,160 AllianceBernstein Holding L.P. 15,592,549
87,540 Ameriprise Financial Inc. 3,560,252
193,340 Legg Mason, Inc. 8,423,824
114,100 Merrill Lynch & Co., Inc. 3,618,111
241,660 Morgan Stanley 8,716,676
--------------
39,911,412
--------------
CHEMICALS -- 1.7%
209,130 du Pont (E.I.) de Nemours & Co. 8,969,586
338,000 International Flavors & Fragrances Inc. 13,202,280
89,710 Minerals Technologies Inc. 5,704,659
--------------
27,876,525
--------------
COMMERCIAL BANKS -- 4.8%
813,110 Associated Banc-Corp 15,684,892
450,520 BB&T Corp.(1) 10,258,340
1,568,790 Marshall & Ilsley Corp. 24,049,550
349,680 SunTrust Banks, Inc. 12,665,410
312,950 U.S. Bancorp 8,728,176
283,980 Zions Bancorporation(1) 8,942,530
--------------
80,328,898
--------------
Shares Value
COMMERCIAL SERVICES & SUPPLIES -- 3.2%
445,850 Avery Dennison Corp. $ 19,586,191
260,910 Pitney Bowes, Inc. 8,897,031
289,890 Republic Services, Inc. 8,609,733
418,740 Waste Management, Inc. 15,790,685
--------------
52,883,640
--------------
COMPUTERS & PERIPHERALS -- 0.6%
305,950 Diebold, Inc. 10,885,701
--------------
CONTAINERS & PACKAGING -- 2.9%
2,137,490 Bemis Co., Inc. 47,922,526
--------------
DISTRIBUTORS -- 0.8%
340,740 Genuine Parts Co. 13,520,563
--------------
DIVERSIFIED -- 1.5%
194,880 Standard and Poor's 500 Depositary Receipt Series 1 24,944,640
--------------
DIVERSIFIED FINANCIAL SERVICES -- 4.1%
1,186,540 Bank of America Corp. 28,322,710
899,790 JPMorgan Chase & Co. 30,871,794
251,030 McGraw-Hill Companies, Inc. (The) 10,071,324
--------------
69,265,828
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 5.0%
1,773,490 AT&T Inc. 59,748,878
704,270 Verizon Communications Inc. 24,931,158
--------------
84,680,036
--------------
ELECTRIC UTILITIES -- 2.3%
491,260 IDACORP, Inc. 14,192,501
69,400 Southern Co. 2,423,448
1,054,230 Westar Energy Inc. 22,676,488
--------------
39,292,437
--------------
ELECTRICAL EQUIPMENT -- 1.0%
403,240 Hubbell Inc. Cl B 16,077,179
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.6%
655,340 Molex Inc. 15,996,850
313,510 Tyco Electronics Ltd. 11,229,928
--------------
27,226,778
--------------
FOOD & STAPLES RETAILING -- 0.2%
66,420 Wal-Mart Stores, Inc. 3,732,804
--------------
- ------
8
VP Value
Shares Value
FOOD PRODUCTS -- 9.9%
649,660 Campbell Soup Co. $ 21,737,624
1,421,090 ConAgra Foods, Inc. 27,398,615
337,720 Hershey Co. (The) 11,070,462
318,850 Kellogg Co. 15,311,177
2,378,760 Kraft Foods Inc. Cl A 67,675,722
818,210 Unilever N.V. CVA 23,236,389
--------------
166,429,989
--------------
GAS UTILITIES -- 0.9%
191,080 Southwest Gas Corp. 5,680,808
254,940 WGL Holdings Inc. 8,856,616
--------------
14,537,424
--------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8%
450,940 Beckman Coulter, Inc. 30,451,978
--------------
HEALTH CARE PROVIDERS & SERVICES -- 0.6%
204,550 LifePoint Hospitals Inc.(2) 5,788,765
58,050 Universal Health Services, Inc. Cl B 3,669,921
--------------
9,458,686
--------------
HOTELS, RESTAURANTS & LEISURE -- 2.1%
432,230 International Speedway Corp. Cl A 16,869,937
907,860 Speedway Motorsports Inc. 18,502,187
--------------
35,372,124
--------------
HOUSEHOLD DURABLES -- 0.4%
114,600 Whirlpool Corp. 7,074,258
--------------
HOUSEHOLD PRODUCTS -- 5.8%
253,980 Clorox Co. 13,257,756
1,252,000 Kimberly-Clark Corp. 74,844,560
143,300 Procter & Gamble Co. (The) 8,714,073
--------------
96,816,389
--------------
INDUSTRIAL CONGLOMERATES -- 6.3%
202,860 3M Co. 14,117,027
3,459,520 General Electric Co. 92,334,589
--------------
106,451,616
--------------
INSURANCE -- 6.2%
265,060 Allstate Corp. 12,084,085
1,173,020 American International Group, Inc. 31,038,109
130 Berkshire Hathaway Inc. Cl A(2) 15,697,500
106,940 Chubb Corp. 5,241,129
184,080 Hartford Financial Services Group Inc. (The) 11,886,046
1,072,090 Marsh & McLennan Companies, Inc. 28,463,990
--------------
104,410,859
--------------
Shares Value
LEISURE EQUIPMENT & PRODUCTS -- 0.3%
315,100 RC2 Corp.(2) $ 5,848,256
--------------
MULTI-UTILITIES -- 1.9%
356,790 Puget Energy, Inc. 8,559,392
350,520 Wisconsin Energy Corp. 15,850,514
374,040 Xcel Energy Inc. 7,506,983
--------------
31,916,889
--------------
MULTILINE RETAIL -- 0.3%
91,960 Target Corp. 4,275,220
--------------
OIL, GAS & CONSUMABLE FUELS -- 10.8%
40,230 Apache Corp. 5,591,970
742,960 BP plc ADR 51,687,727
56,190 Chevron Corp. 5,570,115
82,380 Equitable Resources Inc. 5,689,163
964,940 Exxon Mobil Corp. 85,040,162
50,920 Royal Dutch Shell plc ADR 4,160,673
264,470 Total SA ORD 22,577,915
--------------
180,317,725
--------------
PAPER & FOREST PRODUCTS -- 0.9%
286,410 Weyerhaeuser Co. 14,647,007
--------------
PHARMACEUTICALS -- 7.1%
141,740 Abbott Laboratories 7,507,968
810,920 Bristol-Myers Squibb Co. 16,648,188
270,920 Eli Lilly & Co. 12,505,667
645,730 Johnson & Johnson 41,546,268
200,280 Merck & Co., Inc. 7,548,553
1,909,540 Pfizer Inc. 33,359,664
--------------
119,116,308
--------------
ROAD & RAIL -- 0.3%
346,220 Heartland Express, Inc.(1) 5,162,140
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.4%
567,470 Intel Corp. 12,189,255
189,380 KLA-Tencor Corp. 7,709,660
139,230 Texas Instruments Inc. 3,920,717
--------------
23,819,632
--------------
SPECIALTY RETAIL -- 0.7%
581,360 Lowe's Companies, Inc. 12,063,220
--------------
TOTAL COMMON STOCKS
(Cost $1,770,365,447) 1,619,045,198
--------------
Temporary Cash Investments -- 1.8%
Repurchase Agreement, Deutsche Bank Securities, Inc.,
(collateralized by various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $30,097,225), in a joint trading account at
1.70%, dated 6/30/08, due 7/1/08 (Delivery value $29,501,393)
(Cost $29,500,000) 29,500,000
--------------
- ------
9
VP Value
Value
Temporary Cash Investments -- Securities Lending Collateral(3) -- 2.0%
Repurchase Agreement, Barclays Capital Inc., (collateralized
by various U.S. Government Agency obligations in a pooled
account at the lending agent), 2.50%, dated 6/30/08,
due 7/1/08 (Delivery value $9,000,625) $ 9,000,000
Repurchase Agreement, BNP Paribas Securities Corp.,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.45%, dated 6/30/08, due 7/1/08
(Delivery value $9,000,613) 9,000,000
Repurchase Agreement, Deutsche Bank Securities Inc.,
(collateralized by various U.S. Government Agency
obligations in a pooled account at the lending agent),
2.50%, dated 6/30/08, due 7/1/08
(Delivery value $9,000,625) 9,000,000
Value
Repurchase Agreement, UBS Securities LLC, (collateralized by
various U.S. Government Agency obligations in a pooled
account at the lending agent), 2.65%, dated 6/30/08, due
7/1/08
(Delivery value $6,753,430) $ 6,752,933
--------------
TOTAL TEMPORARY CASH INVESTMENTS -- SECURITIES LENDING
COLLATERAL
(Cost $33,752,933) 33,752,933
--------------
TOTAL INVESTMENT SECURITIES -- 100.3%
(Cost $1,833,618,380) 1,682,298,131
--------------
OTHER ASSETS AND LIABILITIES -- (0.3)% (5,144,894)
--------------
TOTAL NET ASSETS -- 100.0% $1,677,153,237
==============
Forward Foreign Currency Exchange Contracts
Unrealized
Contracts to Sell Settlement Date Value Gain (Loss)
28,524,519 Euro for USD 7/31/08 $ 44,859,236 $ (43,444)
27,432,889 GBP for USD 7/31/08 54,558,481 (127,215)
2,310,957,600 JPY for USD 7/31/08 21,832,460 (253,001)
------------ ------------
$121,250,177 $(423,660)
============ ============
(Value on Settlement Date $120,826,517)
Notes to Schedule of Investments
ADR = American Depositary Receipt
CVA = Certificaten Van Aandelen
GBP = British Pound
JPY = Japanese Yen
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Security, or a portion thereof, was on loan as of June 30, 2008.
(2) Non-income producing.
(3) Investments represent purchases made by the lending agent with cash
collateral received through securities lending transactions.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $1,799,865,447) --
including $32,110,325 of securities on loan $1,648,545,198
Investments made with cash collateral received for securities on
loan, at value (cost of $33,752,933) 33,752,933
--------------
Total investment securities, at value (cost of $1,833,618,380) 1,682,298,131
Receivable for investments sold 35,831,822
Dividends and interest receivable 4,077,633
--------------
1,722,207,586
--------------
LIABILITIES
Disbursements in excess of demand deposit cash 2,074,008
Payable for collateral received on securities on loan 33,752,933
Payable for investments purchased 7,335,320
Payable for forward foreign currency exchange contracts 423,660
Accrued management fees 1,340,635
Distribution fees payable 127,793
--------------
45,054,349
--------------
NET ASSETS $1,677,153,237
==============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $2,046,353,993
Undistributed net investment income 20,775,219
Accumulated net realized loss on investment and foreign currency
transactions (238,220,663)
Net unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (151,755,312)
--------------
$1,677,153,237
==============
CLASS I, $0.01 PAR VALUE
Net assets $1,087,987,830
Shares outstanding 195,766,212
Net asset value per share $5.56
CLASS II, $0.01 PAR VALUE
Net assets $581,305,526
Shares outstanding 104,548,324
Net asset value per share $5.56
CLASS III, $0.01 PAR VALUE
Net assets $7,859,881
Shares outstanding 1,414,126
Net asset value per share $5.56
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $191,864) $ 30,273,841
Interest 131,431
Securities lending, net 88,761
--------------
30,494,033
--------------
EXPENSES:
Management fees 8,782,103
Distribution fees -- Class II 830,662
Directors' fees and expenses 28,961
Other expenses 34,037
--------------
9,675,763
--------------
NET INVESTMENT INCOME (LOSS) 20,818,270
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (97,003,945)
Foreign currency transactions (4,396,298)
--------------
(101,400,243)
--------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (187,790,633)
Translation of assets and liabilities in foreign currencies 330,729
--------------
(187,459,904)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (288,860,147)
--------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $(268,041,877)
==============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED
DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ 20,818,270 $ 43,139,269
Net realized gain (loss) (101,400,243) 145,356,784
Change in net unrealized appreciation
(depreciation) (187,459,904) (302,707,867)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations (268,041,877) (114,211,814)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class I (28,899,596) (30,308,484)
Class II (14,084,486) (12,268,816)
Class III (203,206) (257,105)
From net realized gains:
Class I (153,427,939) (157,170,511)
Class II (79,903,650) (70,106,125)
Class III (1,078,818) (1,333,266)
-------------- --------------
Decrease in net assets from distributions (277,597,695) (271,444,307)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from
capital share transactions (23,060,532) (197,553,143)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS (568,700,104) (583,209,264)
NET ASSETS
Beginning of period 2,245,853,341 2,829,062,605
-------------- --------------
End of period $1,677,153,237 $2,245,853,341
============== ==============
Undistributed net investment income $20,775,219 $43,144,237
============== ==============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc. (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Value Fund (the fund) is one fund
in a series issued by the corporation. The fund is diversified under the 1940
Act. The fund's investment objective is to seek long-term capital growth.
Income is a secondary objective. The fund pursues its investment objective by
investing primarily in equity securities of companies that management believes
to be undervalued at the time of purchase. The following is a summary of the
fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I, Class II and Class
III. The share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
EXCHANGE TRADED FUNDS -- The fund may invest in exchange traded funds (ETFs).
ETFs are a type of index fund bought and sold on a securities exchange. An ETF
trades like common stock and represents a fixed portfolio of securities
designed to track the performance and dividend yield of a particular domestic
or foreign market index. A fund may purchase an ETF to temporarily gain
exposure to a portion of the U.S. or a foreign market while awaiting purchase
of underlying securities. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
the lack of liquidity on an ETF could result in it being more volatile.
Additionally, ETFs have management fees, which increase their cost.
SECURITIES ON LOAN -- The fund may lend portfolio securities through its
lending agent to certain approved borrowers in order to earn additional
income. The income earned, net of any rebates or fees, is included in the
Statement of Operations. The fund continues to recognize any gain or loss in
the market price of the securities loaned and records any interest earned or
dividends declared.
- ------
14
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For
assets and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose
taxes on the contract amount of purchases and sales of foreign currency
contracts in their currency. The fund records the foreign tax expense, if any,
as a reduction to the net realized gain (loss) on foreign currency
transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities
transactions on a when-issued or forward commitment basis. Under these
arrangements, the securities' prices and yields are fixed on the date of the
commitment, but payment and delivery are scheduled for a future date. During
this period, securities are subject to market fluctuations. The fund will
segregate cash, cash equivalents or other appropriate liquid securities on its
records in amounts sufficient to meet the purchase price.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
- ------
15
The fund has elected to treat $(77,784,766) and $(28,834) of net capital and
foreign currency losses, respectively, incurred in the two-month period ended
December 31, 2007, as having been incurred in the following fiscal year for
federal income tax purposes.
REDEMPTION -- The fund may impose a 1.00% redemption fee on shares held less
than 60 days. The fee may not be applicable to all classes. The redemption fee
is recorded as a reduction in the cost of shares redeemed. The redemption fee
is retained by the fund and helps cover transaction costs that long-term
investors may bear when a fund sells securities to meet investor redemptions.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. For funds
with a stepped fee schedule, the rate of the fee is determined by applying a
fee rate calculation formula. This formula takes into account all of the
investment advisor's assets under management in the fund's investment strategy
(strategy assets) to calculate the appropriate fee rate for the fund. The
strategy assets include the fund's assets and the assets of other clients of
the investment advisor that are not in the American Century Investments family
of funds, but that have the same investment team and investment strategy. The
annual management fee schedule for each class of the fund ranges from 0.90% to
1.00% for Class I and Class III and from 0.80% to 0.90% for Class II. The
effective annual management fee for each class of the fund for the six months
ended June 30, 2008, was 0.94%, 0.84% and 0.94% for Class I, Class II and
Class III, respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. The fund has a securities lending agreement with JPMorgan
Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned
subsidiary of JPM.
- ------
16
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008, were $1,094,253,829 and
$1,430,350,493, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $1,903,941,538
===============
Gross tax appreciation of investments $ 56,443,254
Gross tax depreciation of investments (278,086,661)
---------------
Net tax appreciation (depreciation) of investments $(221,643,407)
===============
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended Year ended
June 30, 2008 December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 650,000,000 650,000,000
=========== ===========
Sold 3,615,453 $ 23,176,109 10,670,122 $ 87,684,738
Issued in
reinvestment
of
distributions 30,694,871 182,327,535 24,066,623 187,478,995
Redeemed (35,418,608) (230,860,350) (63,539,788) (518,128,418)
------------ -------------- ------------ --------------
(1,108,284) (25,356,706) (28,803,043) (242,964,685)
------------ -------------- ------------ --------------
CLASS
II/SHARES
AUTHORIZED 300,000,000 300,000,000
=========== ===========
Sold 3,302,783 20,960,285 11,779,798 97,228,612
Issued in
reinvestment
of
distributions 15,796,325 93,988,136 10,560,890 82,374,941
Redeemed (17,091,388) (112,703,013) (16,067,534) (129,735,817)
------------ -------------- ------------ --------------
2,007,720 2,245,408 6,273,154 49,867,736
------------ -------------- ------------ --------------
CLASS
III/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 171,638 1,103,333 459,047 3,853,234
Issued in
reinvestment
of
distributions 215,829 1,282,024 204,155 1,590,371
Redeemed (363,485) (2,334,591)(1) (1,210,980) (9,899,799)(2)
------------ -------------- ------------ --------------
23,982 50,766 (547,778) (4,456,194)
------------ -------------- ------------ --------------
Net increase
(decrease) 923,418 $ (23,060,532) (23,077,667) $(197,553,143)
============ ============== ============ ==============
(1) Net of redemption fees of $2,116.
(2) Net of redemption fees of $4,081.
5. SECURITIES LENDING
As of June 30, 2008, securities in the fund valued at $32,110,325 were on loan
through the lending agent, JPMCB, to certain approved borrowers. JPMCB
receives and maintains collateral in the form of cash and/or acceptable
securities as approved by ACIM. Cash collateral is invested in authorized
investments by the lending agent in a pooled account. The value of cash
collateral received at period end is disclosed in the Statement of Assets and
Liabilities and investments made with the cash by the lending agent are listed
in the Schedule of Investments. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. The total market value of all collateral
received, at this date, was $33,752,933. The fund's risks in securities
lending are that the borrower may not provide additional collateral when
required or return the securities when due. If the borrower defaults, receipt
of the collateral by the fund may be delayed or limited.
- ------
17
6. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Unrealized
Gain (Loss) on
Value of Other
Investment Financial
Valuation Inputs Securities Instruments*
Level 1 -- Quoted Prices $1,546,866,365 --
Level 2 -- Other Significant Observable Inputs 135,431,766 $(423,660)
Level 3 -- Significant Unobservable Inputs -- --
-------------- --------------
$1,682,298,131 $(423,660)
============== ==============
*Includes forward foreign currency exchange contracts.
7. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
18
FINANCIAL HIGHLIGHTS
VP Value
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning
of Period $7.47 $8.74 $8.20 $8.75 $7.79 $6.12
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net
Investment
Income
(Loss)(2) 0.07 0.13 0.13 0.13 0.09 0.09
Net Realized
and
Unrealized
Gain (Loss) (0.98) (0.54) 1.26 0.28 1.01 1.65
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.91) (0.41) 1.39 0.41 1.10 1.74
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.16) (0.14) (0.12) (0.08) (0.08) (0.07)
From Net
Realized
Gains (0.84) (0.72) (0.73) (0.88) (0.06) --
-------- -------- -------- -------- -------- --------
Total
Distributions (1.00) (0.86) (0.85) (0.96) (0.14) (0.07)
-------- -------- -------- -------- -------- --------
Net Asset
Value,
End of Period $5.56 $7.47 $8.74 $8.20 $8.75 $7.79
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (13.01)% (5.14)% 18.65% 5.03% 14.33% 28.96%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses
to Average
Net Assets 0.95%(4) 0.93% 0.93% 0.93% 0.93% 0.95%
Ratio of
Net
Investment
Income
(Loss) to
Average
Net Assets 2.19%(4) 1.65% 1.58% 1.66% 1.16% 1.37%
Portfolio
Turnover
Rate 57% 152% 132% 133% 139% 109%
Net
Assets,
End of
Period
(in
thousands) $1,087,988 $1,470,148 $1,971,620 $2,297,418 $2,248,902 $1,919,580
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
19
VP Value
Class II
For a Share Outstanding Throughout the Years Ended December 31
(except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $7.46 $8.73 $8.19 $8.74 $7.78 $6.11
-------- -------- -------- -------- -------- --------
Income From
Investment
Operations
Net Investment
Income
(Loss)(2) 0.07 0.12 0.12 0.12 0.08 0.08
Net Realized
and
Unrealized
Gain (Loss) (0.98) (0.54) 1.25 0.27 1.01 1.65
-------- -------- -------- -------- -------- --------
Total From
Investment
Operations (0.91) (0.42) 1.37 0.39 1.09 1.73
-------- -------- -------- -------- -------- --------
Distributions
From Net
Investment
Income (0.15) (0.13) (0.10) (0.06) (0.07) (0.06)
From Net
Realized Gains (0.84) (0.72) (0.73) (0.88) (0.06) --
-------- -------- -------- -------- -------- --------
Total
Distributions (0.99) (0.85) (0.83) (0.94) (0.13) (0.06)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $5.56 $7.46 $8.73 $8.19 $8.74 $7.78
======== ======== ======== ======== ======== ========
TOTAL RETURN(3) (13.04)% (5.31)% 18.46% 4.85% 14.17% 28.81%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses
to Average Net
Assets 1.10%(4) 1.08% 1.08% 1.08% 1.08% 1.10%
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 2.04%(4) 1.50% 1.43% 1.51% 1.01% 1.22%
Portfolio
Turnover Rate 57% 152% 132% 133% 139% 109%
Net Assets, End
of Period
(in thousands) $581,306 $765,324 $840,512 $648,071 $433,465 $218,141
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
20
VP Value
Class III
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset Value,
Beginning of Period $7.47 $8.74 $8.20 $8.75 $7.79 $6.12
------- ------- ------- ------- ------- -------
Income From
Investment Operations
Net Investment
Income (Loss)(2) 0.07 0.13 0.13 0.13 0.09 0.09
Net Realized and
Unrealized Gain
(Loss) (0.98) (0.54) 1.26 0.28 1.01 1.65
------- ------- ------- ------- ------- -------
Total From
Investment
Operations (0.91) (0.41) 1.39 0.41 1.10 1.74
------- ------- ------- ------- ------- -------
Distributions
From Net
Investment Income (0.16) (0.14) (0.12) (0.08) (0.08) (0.07)
From Net
Realized Gains (0.84) (0.72) (0.73) (0.88) (0.06) --
------- ------- ------- ------- ------- -------
Total
Distributions (1.00) (0.86) (0.85) (0.96) (0.14) (0.07)
------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $5.56 $7.47 $8.74 $8.20 $8.75 $7.79
======= ======= ======= ======= ======= =======
TOTAL RETURN(3) (13.01)% (5.14)% 18.65% 5.03% 14.33% 28.96%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating
Expenses
to Average Net Assets 0.95%(4) 0.93% 0.93% 0.93% 0.93% 0.95%
Ratio of Net
Investment
Income (Loss)
to Average
Net Assets 2.19%(4) 1.65% 1.58% 1.66% 1.16% 1.37%
Portfolio Turnover
Rate 57% 152% 132% 133% 139% 109%
Net Assets, End of
Period
(in thousands) $7,860 $10,381 $16,931 $8,750 $6,387 $1,819
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
21
APPROVAL OF MANAGEMENT AGREEMENT
VP Value
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Value Fund (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of
- ------
22
the fund, the Directors did not identify any single factor as being
all-important or controlling, and each Director may have attributed different
levels of importance to different factors. In deciding to renew the management
agreement under the terms ultimately determined by the board to be
appropriate, the Directors' decision was based on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems to conduct their
business. At each quarterly meeting the Directors review investment
performance information for the fund, together with comparative information
for appropriate benchmarks and peer groups of funds managed similarly to the
fund. The Directors also review detailed performance information during the
15(c) Process comparing the fund's performance with that of similar funds not
managed by the
- ------
23
advisor. If performance concerns are identified, the Directors discuss with
the advisor the reasons for such results (e.g., market conditions, security
selection) and any efforts being undertaken to improve performance. The fund's
quarter end performance fell below the median for its peer group for both the
one- and three-year periods during the past year. The board discussed the
fund's performance with the advisor and was satisfied with the efforts being
undertaken by the advisor. The board will continue to monitor these efforts
and the performance of the fund. More detailed information about the fund's
performance can be found in the PERFORMANCE and PORTFOLIO COMMENTARY sections
of this report.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
24
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was slightly above the median of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the fund to the advisor was reasonable in light of the services provided to
the fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
25
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
26
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The LIPPER MULTI-CAP VALUE INDEX is an equally-weighted index of, typically,
the 30 largest mutual funds that use a value investment strategy to purchase
securities of companies of all market capitalizations.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL 3000® INDEX measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represents approximately
98% of the investable U.S. equity market.
The RUSSELL 3000® VALUE INDEX measures the performance of those Russell 3000
Index companies (the 3,000 largest U.S. companies based on total market
capitalization) with lower price-to-book ratios and lower forecasted growth
values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
- ------
27
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The S&P 500 INDEX is a market value-weighted index of the stocks of 500
publicly traded U.S. companies chosen for market size, liquidity, and industry
group representation that are considered to be leading firms in dominant
industries. Each stock's weight in the index is proportionate to its market
value. Created by Standard & Poor's, it is considered to be a broad measure of
U.S. stock market performance.
- ------
28
[back cover]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE. . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES . . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF. . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61143
[front cover]
SEMIANNUAL REPORT
JUNE 30, 2008
[american century investments logo and text logo ®]
AMERICAN CENTURY VARIABLE PORTFOLIOS
VP VISTA(SM) FUND
TABLE OF CONTENTS
Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Stock Index Returns . . . . . . . . . . . . . . . . . . . . . . 2
VP VISTA
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Ten Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Top Five Industries. . . . . . . . . . . . . . . . . . . . . . . . . 6
Types of Investments in Portfolio. . . . . . . . . . . . . . . . . . 6
Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS
Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . 11
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Statement of Changes in Net Assets. . . . . . . . . . . . . . . . . . 13
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 14
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . 19
OTHER INFORMATION
Approval of Management Agreement for VP Vista . . . . . . . . . . . . 21
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 26
Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 27
The opinions expressed in the Market Perspective and the Portfolio Commentary
reflect those of the portfolio management team as of the date of the report,
and do not necessarily represent the opinions of American Century Investments
or any other person in the American Century Investments organization. Any such
opinions are subject to change at any time based upon market or other
conditions and American Century Investments disclaims any responsibility to
update such opinions. These opinions may not be relied upon as investment
advice and, because investment decisions made by American Century Investments
funds are based on numerous factors, may not be relied upon as an indication
of trading intent on behalf of any American Century Investments fund. Security
examples are used for representational purposes only and are not intended as
recommendations to purchase or sell securities. Performance information for
comparative indices and securities is provided to American Century Investments
by third party vendors. To the best of American Century Investments'
knowledge, such information is accurate at the time of printing.
MARKET PERSPECTIVE
[photo of Chief Investment Officer]
By Enrique Chang, Chief Investment Officer, American Century Investments
STOCKS STUMBLED AMID WEAK ECONOMY AND TURBULENT CREDIT MARKETS
In an increasingly volatile investment environment, the broad U.S. equity
indexes suffered double-digit declines in the first half of 2008. Stocks
started the year on a downward trajectory, producing their worst quarterly
performance in nearly six years as continuing fallout from the subprime
lending meltdown and a liquidity crunch in the credit markets threatened to
tip the U.S. economy into recession.
The Federal Reserve (the Fed) responded with a more aggressive program of
short-term interest rate cuts, lowering its federal funds rate target from
4.5% to 2.0% in the first four months of the year. The Fed also injected
liquidity into the credit markets and brokered a buyout of near-bankrupt
investment bank Bear Stearns by JPMorgan Chase in mid-March.
The Bear Stearns rescue, as well as improving economic data and
better-than-expected corporate earnings reports, helped ease credit and
economic fears, allowing stocks to stage a solid recovery in April and May.
However, the market tumbled sharply in June amid evidence of further economic
weakness and additional credit-related losses in the financials sector.
Investors also grew concerned about rising inflation as energy and food prices
surged, leading the Fed to hold short-term rates steady in June.
MID-CAP AND GROWTH HELD UP BEST
Although stocks declined across the board in the first six months of 2008,
mid-cap issues generated the best returns, while large-cap shares experienced
the biggest declines (see the accompanying table). Growth-oriented stocks
extended their outperformance from 2007, outpacing value shares across all
market capitalizations.
Energy and materials were the only two sectors of the market to gain ground
during the period. Energy stocks advanced as the price of oil soared to a
record high of $140 a barrel, while the materials sector benefited from rising
commodity prices. The financials sector sustained the largest losses, plunging
by more than 30% as credit-related losses piled up.
U.S. Stock Index Returns
For the six months ended June 30, 2008*
RUSSELL 1000 INDEX (LARGE-CAP) -11.20%
Russell 1000 Growth Index -9.06%
Russell 1000 Value Index -13.57%
RUSSELL MIDCAP INDEX -7.57%
Russell Midcap Growth Index -6.81%
Russell Midcap Value Index -8.58%
RUSSELL 2000 INDEX (SMALL-CAP) -9.37%
Russell 2000 Growth Index -8.93%
Russell 2000 Value Index -9.84%
* Total returns for periods less than one year are not annualized.
- ------
2
PERFORMANCE
VP Vista
Total Returns as of June 30, 2008
Average Annual
Returns
Since Inception
6 months(1) 1 year 5 years Inception Date
CLASS I -8.03% 5.28% 16.07% 11.08% 10/5/01
RUSSELL MIDCAP GROWTH
INDEX(2) -6.81% -6.42% 12.32% 9.62% --
Class II -8.10% 5.08% -- 16.18% 4/29/05
(1) Total returns for periods less than one year are not annualized.
(2) Data provided by Lipper Inc. -- A Reuters Company. ©2008 Reuters. All
rights reserved. Any copying, republication or redistribution of Lipper
content, including by caching, framing or similar means, is expressly
prohibited without the prior written consent of Lipper. Lipper shall not be
liable for any errors or delays in the content, or for any actions taken in
reliance thereon.
The data contained herein has been obtained from company reports, financial
reporting services, periodicals and other resources believed to be reliable.
Although carefully verified, data on compilations is not guaranteed by Lipper
and may be incomplete. No offer or solicitations to buy or sell any of the
securities herein is being made by Lipper.
The performance information presented does not include charges and deductions
imposed by the insurance company separate account under the variable annuity
or variable life insurance contracts. The inclusion of such charges could
significantly lower performance. Please refer to the insurance company
separate account prospectus for a discussion of the charges related to
insurance contracts.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. The
fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. International
investing involves special risks, such as political instability and currency
fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
3
VP Vista
Growth of $10,000 Over Life of Class
$10,000 investment made October 5, 2001
One-Year Returns Over Life of Class
Periods ended June 30
2002* 2003 2004 2005 2006 2007 2008
Class I -3.20% -0.52% 31.98% 4.17% 16.72% 24.81% 5.28%
Russell Midcap Growth
Index -3.25% 7.35% 27.33% 10.86% 13.04% 19.73% -6.42%
* From 10/5/01, Class I's inception date. Not annualized.
Data presented reflect past performance. Past performance is no guarantee of
future results. Current performance may be higher or lower than the
performance shown. Investment return and principal value will fluctuate, and
redemption value may be more or less than original cost. To obtain performance
data current to the most recent month end, please call 1-800-345-6488. The
fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. International
investing involves special risks, such as political instability and currency
fluctuations.
Unless otherwise indicated, performance reflects Class I shares; performance
for other share classes will vary due to differences in fee structure. For
information about other share classes available, please consult the
prospectus. Data assumes reinvestment of dividends and capital gains, and none
of the charts reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns for the index are
provided for comparison. The fund's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not.
- ------
4
PORTFOLIO COMMENTARY
VP Vista
Portfolio Managers: Glenn Fogle and Brad Eixmann
In February 2008, David Hollond left the team to focus on the American Century
Heritage, Giftrust and VP Capital Appreciation funds.
PERFORMANCE SUMMARY
VP Vista returned -8.03%* for the six months ended June 30, 2008, lagging the
- -6.81% return of its benchmark, the Russell Midcap Growth Index
As discussed in the Market Perspective on page 2, equity indices struggled
with ongoing market volatility during the reporting period. The effects of the
subprime-related credit crunch continued to be visible as tightened liquidity
kept recession concerns on investors' minds. Meanwhile, rising energy and
other commodities prices increased inflation fears. Amid this volatility, VP
Vista's management team remained focused on the fundamental business prospects
of its portfolio investments.
Within the portfolio, poor security selection in the consumer discretionary
and information technology sectors detracted from absolute and relative
performance. An overweight allocation and poor stock selection in the health
care sector further hindered performance. An overweight allocation and
effective stock selection in the materials sector helped to mitigate losses.
We allocated a portion of VP Vista's assets to holdings of companies outside
of the United States. This allocation detracted from portfolio returns, as
international stocks generated weaker returns than the domestic market.
CONSUMER DISCRETIONARY, INFORMATION TECHNOLOGY LAGGED
The consumer discretionary group weighed on VP Vista's performance. Within the
sector, video game retailer GameStop, which had enjoyed a robust video game
cycle in past reporting periods, declined during the reporting period.
Although GameStop delivered healthy earnings levels and raised guidance, it
fell victim to apparent investor concern that it would be adversely affected
by the slowing economic environment.
The portfolio has benefited in the past from a stake in the hotels,
restaurants and leisure group, where we focused on several casinos and makers
of slot machines. These companies collectively suffered traffic declines in
the reporting period and detracted from performance.
In the information technology sector, the portfolio held a stake in Apple,
which had posted solid gains in the past, experiencing a surge in sales with
the introduction of the iPhone. Apple provided lower guidance for the second
quarter, and its share price slid 15%.
Top Ten Holdings as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Flowserve Corp. 4.0% 2.0%
Monsanto Co. 3.0% 2.2%
SBA Communications Corp. Cl A 2.8% 2.2%
Weatherford International Ltd. 2.7% --
Syngenta AG ORD 2.6% --
Petrohawk Energy Corp. 2.6% --
MasterCard Inc. Cl A 2.4% 1.2%
Quanta Services, Inc. 2.3% 2.1%
NII Holdings, Inc. 2.2% 2.1%
Owens-Illinois Inc. 2.1% 3.0%
* All fund returns referenced in this commentary are for Class I shares. Total
returns for periods less than one year are not annualized.
- ------
5
VP Vista
HEALTH CARE HURT PERFORMANCE
Health care holdings also weighed on relative returns. Notably,
biopharmaceutical company Onyx Pharmaceuticals detracted significantly from
portfolio performance. Although the cancer therapy developer swung to a profit
in the first quarter, its share price sank 36% as key executives exited the
firm during the reporting period.
INDUSTRIALS WERE MIXED
Within the industrials sector, we maintained an overweight position in the
aerospace and defense industry. Holdings within this group have contributed
significantly to portfolio gains in the past, benefiting from a replacement
cycle and expanding orders in global aviation. During the reporting period,
this group lost ground amid market volatility and investor nervousness about
rising oil prices. BE Aerospace, in particular, declined 56% and detracted
from performance, although it delivered strong first quarter earnings and
raised guidance for the full year.
Elsewhere in the industrials sector, the portfolio held an overweight position
in machinery company Flowserve. A maker of pumps, seals, and valves to end
users in the oil and gas, power, chemicals, and water industries, Flowserve
was a key contributor to portfolio performance for the reporting period as its
share price gained 43%.
MATERIALS CONTRIBUTED
Select holdings in the materials sector also reaped rewards from increased
global demand for agriculture and corresponding rising commodities prices.
Here, we focused on chemicals companies, including Monsanto. The company,
which is a producer of corn seed, benefited from escalating corn prices. Not a
constituent of the benchmark, Monsanto was a substantial contributor to
relative performance.
OUTLOOK
VP Vista's investment process focuses on medium-sized and smaller companies
with accelerating earnings growth rates and share price momentum. We believe
that active investing in such companies will generate outperformance over time
compared with the Russell Midcap Growth Index.
We believe that our process works well, despite the current high levels of
market volatility. We are confident in our current sector emphasis, and
continue monitoring the market for any meaningful, sustainable changes in
sector leadership.
Top Five Industries as of June 30, 2008
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Oil, Gas & Consumable Fuels 9.9% --
Semiconductors &
Semiconductor Equipment 8.7% 4.1%
Chemicals 7.5% 3.9%
Energy Equipment & Services 6.7% 4.9%
Machinery 5.8% 5.2%
Types of Investments in Portfolio
% of net % of net
assets as of assets as of
6/30/08 12/31/07
Domestic Common Stocks 84.9% 87.9%
Foreign Common Stocks(1) 12.9% 6.9%
TOTAL COMMON STOCKS 97.8% 94.8%
Cash and Equivalents(2) 2.2% 5.2%
(1) Includes depositary shares, dual listed securities and foreign ordinary
shares.
(2) Includes temporary cash investments and other assets and liabilities.
- ------
6
SHAREHOLDER FEE EXAMPLE (UNAUDITED)
Fund shareholders may incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments and redemption/exchange
fees; and (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in your fund
and to compare these costs with the ongoing cost of investing in other mutual
funds.
The example is based on an investment of $1,000 made at the beginning of the
period and held for the entire period from January 1, 2008 to June 30, 2008.
ACTUAL EXPENSES
The table provides information about actual account values and actual expenses
for each class. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. First,
identify the share class you own. Then simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table also provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio of each class of your
fund and an assumed rate of return of 5% per year before expenses, which is
not the actual return of a fund's share class. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in your fund and other funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption/exchange fees. Therefore, the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
Beginning Ending Expenses Paid
Account Value Account Value During Period* Annualized
1/1/08 6/30/08 1/1/08 - 6/30/08 Expense Ratio*
ACTUAL
Class I $1,000 $919.70 $4.82 1.01%
Class II $1,000 $919.00 $5.53 1.16%
HYPOTHETICAL
Class I $1,000 $1,019.84 $5.07 1.01%
Class II $1,000 $1,019.10 $5.82 1.16%
* Expenses are equal to the class's annualized expense ratio listed in the
table above, multiplied by the average account value over the period,
multiplied by 182, the number of days in the most recent fiscal half-year,
divided by 366, to reflect the one-half year period.
- ------
7
SCHEDULE OF INVESTMENTS
VP Vista
JUNE 30, 2008 (UNAUDITED)
Shares Value
Common Stocks -- 97.8%
AEROSPACE & DEFENSE -- 0.5%
5,815 Precision Castparts Corp. $ 560,392
------------
AUTO COMPONENTS -- 0.6%
57,991 ArvinMeritor, Inc. 723,728
------------
BIOTECHNOLOGY -- 3.0%
21,113 Alexion Pharmaceuticals Inc.(1) 1,530,693
44,445 BioMarin Pharmaceutical Inc.(1) 1,288,016
23,047 CSL Ltd. ORD 788,756
------------
3,607,465
------------
CAPITAL MARKETS -- 0.7%
3,130 BlackRock, Inc. 554,010
10,127 FCStone Group, Inc.(1) 282,847
------------
836,857
------------
CHEMICALS -- 7.5%
15,957 Intrepid Potash, Inc.(1) 1,049,651
27,765 Monsanto Co. 3,510,606
8,328 Mosaic Co. (The)(1) 1,205,062
9,595 Syngenta AG ORD 3,125,583
------------
8,890,902
------------
COMMERCIAL BANKS -- 0.8%
10,778 Credicorp Ltd. 885,089
------------
COMMERCIAL SERVICES & SUPPLIES -- 0.8%
14,618 FTI Consulting, Inc.(1) 1,000,748
------------
COMPUTERS & PERIPHERALS -- 0.6%
4,147 Apple Inc.(1) 694,374
------------
CONSTRUCTION & ENGINEERING -- 5.1%
33,187 Foster Wheeler Ltd.(1) 2,427,629
83,570 Quanta Services, Inc.(1) 2,780,374
14,244 Shaw Group Inc. (The)(1) 880,137
------------
6,088,140
------------
CONTAINERS & PACKAGING -- 2.1%
60,246 Owens-Illinois Inc.(1) 2,511,656
------------
DISTRIBUTORS -- 1.6%
25,046 Central European Distribution Corp.(1) 1,857,161
------------
DIVERSIFIED CONSUMER SERVICES -- 1.9%
8,633 Corinthian Colleges Inc.(1) 100,229
12,971 DeVry Inc. 695,505
10,799 ITT Educational Services Inc.(1) 892,322
2,820 Strayer Education, Inc. 589,577
------------
2,277,633
------------
Shares Value
ELECTRICAL EQUIPMENT -- 3.6%
19,275 American Superconductor Corp.(1) $ 691,009
7,841 Energy Conversion Devices Inc.(1) 577,411
4,705 First Solar Inc.(1) 1,283,619
28,011 JA Solar Holdings Co., Ltd. ADR(1) 471,985
9,076 Vestas Wind Systems AS ORD(1) 1,188,447
------------
4,212,471
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 0.5%
21,546 Molex Inc. 525,938
------------
ENERGY EQUIPMENT & SERVICES -- 6.7%
5,115 Atwood Oceanics Inc.(1) 635,999
23,158 Dresser-Rand Group Inc.(1) 905,478
15,707 Helmerich & Payne, Inc. 1,131,218
55,107 Patterson-UTI Energy Inc. 1,986,056
65,523 Weatherford International Ltd.(1) 3,249,285
------------
7,908,036
------------
HEALTH CARE PROVIDERS & SERVICES -- 3.3%
28,152 Express Scripts, Inc.(1) 1,765,693
46,350 Medco Health Solutions Inc.(1) 2,187,720
------------
3,953,413
------------
HOTELS, RESTAURANTS & LEISURE -- 0.7%
18,985 Panera Bread Co. Cl A(1) 878,246
------------
HOUSEHOLD DURABLES -- 0.6%
14,280 Gafisa SA ADR 490,804
7,752 Tupperware Brands Corp. 265,273
------------
756,077
------------
INDUSTRIAL CONGLOMERATES -- 1.1%
21,075 McDermott International, Inc.(1) 1,304,332
------------
INSURANCE -- 1.4%
27,035 Aflac Inc. 1,697,798
------------
INTERNET & CATALOG RETAIL -- 0.4%
4,031 priceline.com Inc.(1) 465,419
------------
INTERNET SOFTWARE & SERVICES -- 1.1%
19,957 Mercadolibre Inc.(1) 688,317
15,942 VeriSign, Inc.(1) 602,608
------------
1,290,925
------------
IT SERVICES -- 2.4%
10,678 MasterCard Inc. Cl A 2,835,223
------------
- ------
8
VP Vista
Shares Value
LIFE SCIENCES TOOLS & SERVICES -- 2.7%
7,621 Invitrogen Corp.(1) $ 299,200
22,948 PAREXEL International Corp.(1) 603,762
41,425 Thermo Fisher Scientific Inc.(1) 2,308,616
------------
3,211,578
------------
MACHINERY -- 5.8%
27,810 Bucyrus International, Inc. 2,030,686
35,148 Flowserve Corp. 4,804,732
------------
6,835,418
------------
METALS & MINING -- 4.0%
12,689 Cia Siderurgica Nacional SA ADR 563,518
16,164 Cleveland-Cliffs Inc. 1,926,588
18,193 Mechel OAO ADR 901,281
29,281 Timminco Ltd. ORD(1) 785,861
3,164 United States Steel Corp. 584,644
------------
4,761,892
------------
MULTILINE RETAIL -- 2.0%
37,802 Big Lots, Inc.(1) 1,180,934
35,136 Dollar Tree, Inc.(1) 1,148,596
------------
2,329,530
------------
OIL, GAS & CONSUMABLE FUELS -- 9.9%
19,156 Alpha Natural Resources, Inc.(1) 1,997,779
16,248 CONSOL Energy Inc. 1,825,788
4,242 Continental Resources, Inc.(1) 294,055
7,989 Foundation Coal Holdings, Inc. 707,666
5,807 Penn Virginia Corp. 437,964
67,117 Petrohawk Energy Corp.(1) 3,108,188
16,164 Quicksilver Resources Inc.(1) 624,577
4,618 SandRidge Energy, Inc.(1) 298,230
20,079 Southwestern Energy Co.(1) 955,961
12,408 Ultra Petroleum Corp.(1) 1,218,466
2,976 Whiting Petroleum Corp.(1) 315,694
------------
11,784,368
------------
ROAD & RAIL -- 2.2%
18,289 CSX Corp. 1,148,732
19,580 Kansas City Southern Industries, Inc.(1) 861,324
7,853 Union Pacific Corp. 592,902
------------
2,602,958
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 8.7%
53,340 Altera Corp. 1,104,138
30,346 Applied Materials, Inc. 579,305
42,819 Broadcom Corp. Cl A(1) 1,168,531
Shares Value
16,432 Linear Technology Corp. $ 535,190
66,167 Marvell Technology Group Ltd.(1) 1,168,509
34,578 MEMC Electronic Materials Inc.(1) 2,127,929
47,385 Microsemi Corp.(1) 1,193,154
138,490 PMC-Sierra, Inc.(1) 1,059,449
27,394 Teradyne, Inc.(1) 303,252
43,676 Xilinx, Inc. 1,102,819
------------
10,342,276
------------
SOFTWARE -- 3.4%
59,554 Activision, Inc.(1) 2,029,005
16,492 McAfee Inc.(1) 561,223
1,100 Nintendo Co., Ltd. ORD 621,428
12,793 salesforce.com, inc.(1) 872,866
------------
4,084,522
------------
SPECIALTY RETAIL -- 4.2%
21,469 AnnTaylor Stores Corp.(1) 514,397
27,385 Children's Place Retail Stores, Inc. (The)(1) 988,599
17,261 GameStop Corp. Cl A(1) 697,344
11,164 Guess?, Inc. 418,092
32,703 Ross Stores, Inc. 1,161,611
37,965 Urban Outfitters Inc.(1) 1,184,128
------------
4,964,171
------------
TEXTILES, APPAREL & LUXURY GOODS -- 1.9%
16,690 Coach Inc.(1) 482,007
4,374 Deckers Outdoor Corp.(1) 608,861
17,543 Hanesbrands Inc.(1) 476,117
19,345 Phillips-Van Heusen Corp. 708,414
------------
2,275,399
------------
THRIFTS & MORTGAGE FINANCE -- 0.5%
33,634 Hudson City Bancorp, Inc. 561,015
------------
WIRELESS TELECOMMUNICATION SERVICES -- 5.5%
28,875 MetroPCS Communications, Inc.(1) 511,376
54,663 NII Holdings, Inc.(1) 2,595,946
93,604 SBA Communications Corp. Cl A(1) 3,370,680
------------
6,478,002
------------
TOTAL COMMON STOCKS
(Cost $93,895,487) 115,993,152
------------
- ------
9
VP Vista
Value
Temporary Cash Investments -- 2.4%
Repurchase Agreement, Deutsche Bank
Securities, Inc., (collateralized by
various U.S. Treasury obligations, 3.875%,
1/15/09, valued at $2,958,710), in a joint
trading account at 1.70%, dated 6/30/08,
due 7/1/08 (Delivery value $2,900,137)
(Cost $2,900,000) $ 2,900,000
------------
Value
TOTAL INVESTMENT SECURITIES -- 100.2%
(Cost $96,795,487) $118,893,152
------------
OTHER ASSETS AND LIABILITIES -- (0.2)% (230,777)
------------
TOTAL NET ASSETS -- 100.0% $118,662,375
============
Forward Foreign Currency Exchange Contracts
Contracts to Sell Settlement Date Value Unrealized Gain (Loss)
736,561 AUD for USD 7/31/08 $ 703,098 $ (963)
757,646 CAD for USD 7/31/08 742,572 6,049
2,817,331 CHF for USD 7/31/08 2,763,282 (18,950)
5,244,113 DKK for USD 7/31/08 1,105,675 (560)
54,275,086 JPY for USD 7/31/08 512,757 (5,691)
---------- ---------
$5,827,384 $(20,115)
========== =========
(Value on Settlement Date $5,807,269)
Notes to Schedule of Investments
ADR = American Depositary Receipt
AUD = Australian Dollar
CAD = Canadian Dollar
CHF = Swiss Franc
DKK = Danish Krone
JPY = Japanese Yen
ORD = Foreign Ordinary Share
USD = United States Dollar
(1) Non-income producing.
See Notes to Financial Statements.
- ------
10
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2008 (UNAUDITED)
ASSETS
Investment securities, at value (cost of $96,795,487) $118,893,152
Receivable for investments sold 1,902,080
Receivable for forward foreign currency exchange contracts 6,049
Dividends and interest receivable 45,261
------------
120,846,542
------------
LIABILITIES
Disbursements in excess of demand deposit cash 90,091
Payable for investments purchased 1,965,706
Payable for forward foreign currency exchange contracts 26,164
Accrued management fees 95,537
Distribution fees payable 6,669
------------
2,184,167
------------
NET ASSETS $118,662,375
============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $100,176,933
Accumulated net investment loss (268,083)
Accumulated net realized loss on investment and foreign currency
transactions (3,324,445)
Net unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 22,077,970
------------
$118,662,375
============
CLASS I, $0.01 PAR VALUE
Net assets $85,541,122
Shares outstanding 4,437,305
Net asset value per share $19.28
CLASS II, $0.01 PAR VALUE
Net assets $33,121,253
Shares outstanding 1,726,057
Net asset value per share $19.19
See Notes to Financial Statements.
- ------
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
INVESTMENT INCOME (LOSS)
INCOME:
Dividends (net of foreign taxes withheld of $9,790) $ 254,515
Interest 29,365
-------------
283,880
-------------
EXPENSES:
Management fees 551,823
Distribution fees -- Class II 36,197
Directors' fees and expenses 1,546
Other expenses 3,661
-------------
593,227
-------------
NET INVESTMENT INCOME (LOSS) (309,347)
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
Investment transactions (1,070,313)
Foreign currency transactions (398,674)
-------------
(1,468,987)
-------------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
Investments (11,192,961)
Translation of assets and liabilities in foreign currencies 42,361
-------------
(11,150,600)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (12,619,587)
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(12,928,934)
=============
See Notes to Financial Statements.
- ------
12
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2007
Increase (Decrease) in Net Assets 2008 2007
OPERATIONS
Net investment income (loss) $ (309,347) $ (516,898)
Net realized gain (loss) (1,468,987) 5,202,610
Change in net unrealized appreciation (depreciation) (11,150,600) 25,583,041
------------ ------------
Net increase (decrease) in net assets resulting
from operations (12,928,934) 30,268,753
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains:
Class I (3,694,027) --
Class II (1,226,895) --
------------ ------------
Decrease in net assets from distributions (4,920,922) --
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net increase (decrease) in net assets from capital
share transactions (6,113,060) 49,070,963
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (23,962,916) 79,339,716
NET ASSETS
Beginning of period 142,625,291 63,285,575
------------ ------------
End of period $118,662,375 $142,625,291
============ ============
Accumulated undistributed net investment income
(loss) $(268,083) $41,264
============ ============
See Notes to Financial Statements.
- ------
13
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2008 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- American Century Variable Portfolios, Inc., (the corporation)
is registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. VP Vista Fund (the fund) is one fund
in a series issued by the corporation. The fund is diversified under the 1940
Act. The fund's investment objective is to seek long-term capital growth. The
fund pursues its objective by investing in medium-sized and smaller companies
that the investment advisor believes will increase in value over time. The
following is a summary of the fund's significant accounting policies.
MULTIPLE CLASS -- The fund is authorized to issue Class I and Class II. The
share classes differ principally in their respective distribution and
shareholder servicing expenses and arrangements. All shares of the fund
represent an equal pro rata interest in the net assets of the class to which
such shares belong, and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except for class specific expenses
and exclusive rights to vote on matters affecting only individual classes.
Income, non-class specific expenses, and realized and unrealized capital gains
and losses of the fund are allocated to each class of shares based on their
relative net assets.
SECURITY VALUATIONS -- Securities traded primarily on a principal securities
exchange are valued at the last reported sales price, or at the mean of the
latest bid and asked prices where no last sales price is available. Depending
on local convention or regulation, securities traded over-the-counter are
valued at the mean of the latest bid and asked prices, the last sales price,
or the official close price. Debt securities not traded on a principal
securities exchange are valued through a commercial pricing service or at the
mean of the most recent bid and asked prices. Discount notes may be valued
through a commercial pricing service or at amortized cost, which approximates
fair value. Securities traded on foreign securities exchanges and
over-the-counter markets are normally completed before the close of business
on days that the New York Stock Exchange (the Exchange) is open and may also
take place on days when the Exchange is not open. If an event occurs after the
value of a security was established but before the net asset value per share
was determined that was likely to materially change the net asset value, that
security would be valued as determined in accordance with procedures adopted
by the Board of Directors. If the fund determines that the market price of a
portfolio security is not readily available, or that the valuation methods
mentioned above do not reflect the security's fair value, such security is
valued as determined by the Board of Directors or its designee, in accordance
with procedures adopted by the Board of Directors, if such determination would
materially impact a fund's net asset value. Certain other circumstances may
cause the fund to use alternative procedures to value a security such as: a
security has been declared in default; trading in a security has been halted
during the trading day; or there is a foreign market holiday and no trading
will commence.
SECURITY TRANSACTIONS -- For financial reporting purposes, security
transactions are accounted for as of the trade date. Net realized gains and
losses are determined on the identified cost basis, which is also used for
federal income tax purposes.
INVESTMENT INCOME -- Dividend income less foreign taxes withheld, if any, is
recorded as of the ex-dividend date. Interest income is recorded on the
accrual basis and includes accretion of discounts and amortization of premiums.
FOREIGN CURRENCY TRANSACTIONS -- All assets and liabilities initially
expressed in foreign currencies are translated into U.S. dollars at prevailing
exchange rates at period end. Purchases and sales of investment securities,
dividend and interest income, and certain expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. For
assets and liabilities, other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise from
changes in currency exchange rates.
Net realized and unrealized foreign currency exchange gains or losses
occurring during the holding period of investment securities are a component
of realized gain (loss) on investment transactions and unrealized appreciation
(depreciation) on investments, respectively. Certain countries may impose
taxes on the contract amount of purchases and sales of foreign currency
contracts in their currency. The fund records the foreign tax expense, if any,
as a reduction to the net realized gain (loss) on foreign currency
transactions.
- ------
14
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The fund may enter into forward
foreign currency exchange contracts to facilitate transactions of securities
denominated in a foreign currency or to hedge the fund's exposure to foreign
currency exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the fund and the
resulting unrealized appreciation or depreciation are determined daily using
prevailing exchange rates. The fund bears the risk of an unfavorable change in
the foreign currency exchange rate underlying the forward contract.
Additionally, losses may arise if the counterparties do not perform under the
contract terms.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements with
institutions that American Century Investment Management, Inc. (ACIM) (the
investment advisor) has determined are creditworthy pursuant to criteria
adopted by the Board of Directors. Each repurchase agreement is recorded at
cost. The fund requires that the collateral, represented by securities,
received in a repurchase transaction be transferred to the custodian in a
manner sufficient to enable the fund to obtain those securities in the event
of a default under the repurchase agreement. ACIM monitors, on a daily basis,
the securities transferred to ensure the value, including accrued interest, of
the securities under each repurchase agreement is equal to or greater than
amounts owed to the fund under each repurchase agreement.
JOINT TRADING ACCOUNT -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management agreements with ACIM or American
Century Global Investment Management, Inc. (ACGIM), may transfer uninvested
cash balances into a joint trading account. These balances are invested in one
or more repurchase agreements that are collateralized by U.S. Treasury or
Agency obligations.
INCOME TAX STATUS -- It is the fund's policy to distribute substantially all
net investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under provisions of the Internal
Revenue Code. The fund is no longer subject to examination by tax authorities
for years prior to 2004. At this time, management has not identified any
uncertain tax positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly change in the next
twelve months. Accordingly, no provision has been made for federal or state
income taxes. Interest and penalties associated with any federal or state
income tax obligations, if any, are recorded as interest expense.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded on
the ex-dividend date. Distributions from net investment income and net
realized gains, if any, are generally declared and paid annually.
The book-basis character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences reflect
the differing character of certain income items and net realized gains and
losses for financial statement and tax purposes, and may result in
reclassification among certain capital accounts on the financial statements.
The fund has elected to treat $(1,446,047) and $(10,571) of net capital and
foreign currency losses, respectively, incurred in the two-month period ended
December 31, 2007, as having been incurred in the following fiscal year for
federal income tax purposes.
INDEMNIFICATIONS -- Under the corporation's organizational documents, its
officers and directors are indemnified against certain liabilities arising out
of the performance of their duties to the fund. In addition, in the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the fund.
The risk of material loss from such claims is considered by management to be
remote.
USE OF ESTIMATES -- The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America,
which may require management to make certain estimates and assumptions at the
date of the financial statements. Actual results could differ from these
estimates.
- ------
15
2. FEES AND TRANSACTIONS WITH RELATED PARTIES
MANAGEMENT FEES -- The corporation has entered into a Management Agreement
with ACIM, under which ACIM provides the fund with investment advisory and
management services in exchange for a single, unified management fee (the fee)
per class. The Agreement provides that all expenses of the fund, except
brokerage commissions, taxes, interest, fees and expenses of those directors
who are not considered "interested persons" as defined in the 1940 Act
(including counsel fees) and extraordinary expenses, will be paid by ACIM. The
fee is computed and accrued daily based on the daily net assets of the
specific class of shares of the fund and paid monthly in arrears. The
effective annual management fee for each class of the fund for the six months
ended June 30, 2008 was 1.00% and 0.90% for Class I and Class II, respectively.
DISTRIBUTION FEES -- The Board of Directors has adopted the Master
Distribution Plan (the plan) for Class II, pursuant to Rule 12b-1 of the 1940
Act. The plan provides that Class II will pay American Century Investment
Services, Inc. (ACIS) an annual distribution fee equal to 0.25%. The fee is
computed and accrued daily based on the Class II daily net assets and paid
monthly in arrears. The distribution fee provides compensation for expenses
incurred in connection with distributing shares of Class II including, but not
limited to, payments to brokers, dealers, and financial institutions that have
entered into sales agreements with respect to shares of the fund. Fees
incurred under the plan during the six months ended June 30, 2008, are
detailed in the Statement of Operations.
RELATED PARTIES -- Certain officers and directors of the corporation are also
officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc. (ACC), the parent of the corporation's
investment advisor, ACIM, the distributor of the corporation, ACIS, and the
corporation's transfer agent, American Century Services, LLC.
The fund is eligible to invest in a money market fund for temporary purposes,
which is managed by J.P. Morgan Investment Management, Inc. (JPMIM). JPMIM is
a wholly owned subsidiary of JPMorgan Chase & Co. (JPM). JPM is an equity
investor in ACC. JPMorgan Chase Bank (JPMCB) is a custodian of the fund and a
wholly owned subsidiary of JPM.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, excluding short-term
investments, for the six months ended June 30, 2008 were $103,746,778 and
$110,676,205, respectively.
As of June 30, 2008, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of
investments for federal income tax purposes was as follows:
Federal tax cost of investments $97,355,471
===========
Gross tax appreciation of investments $24,050,670
Gross tax depreciation of investments (2,512,989)
-----------
Net tax appreciation (depreciation) of investments $21,537,681
===========
The difference between book-basis and tax-basis cost and unrealized
appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
- ------
16
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the fund were as follows:
Six months ended June 30,2008 Year ended December 31, 2007
Shares Amount Shares Amount
CLASS I/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 1,321,347 $ 25,318,544 5,330,098 $103,272,469
Issued in reinvestment
of distributions 214,769 3,694,027 -- --
Redeemed (1,830,957) (34,276,258) (4,428,334) (85,490,653)
----------- ------------ ----------- ------------
(294,841) (5,263,687) 901,764 17,781,816
----------- ------------ ----------- ------------
CLASS II/SHARES
AUTHORIZED 50,000,000 50,000,000
=========== ===========
Sold 556,317 10,597,066 1,815,989 36,157,145
Issued in reinvestment
of distributions 71,623 1,226,895 -- --
Redeemed (657,988) (12,673,334) (250,153) (4,867,998)
----------- ------------ ----------- ------------
(30,048) (849,373) 1,565,836 31,289,147
----------- ------------ ----------- ------------
Net increase (decrease) (324,889) $(6,113,060) 2,467,600 $ 49,070,963
=========== ============ =========== ============
5. FAIR VALUE MEASUREMENTS
The fund's securities valuation process is based on several considerations and
may use multiple inputs to determine the fair value of the positions held by
the fund. In conformity with accounting principles generally accepted in the
United States of America, the inputs used to determine a valuation are
classified into three broad levels as follows:
* Level 1 valuation inputs consist of actual quoted prices based on an active
market;
* Level 2 valuation inputs consist of significant direct or indirect
observable market data; or
* Level 3 valuation inputs consist of significant unobservable inputs such as
the fund's own assumptions.
The level classification is based on the lowest level input that is
significant to the fair valuation measurement. The valuation inputs are not an
indication of the risks associated with investing in these securities or other
financial instruments.
The following is a summary of the valuation inputs used to determine the fair
value of the fund's securities and other financial instruments as of June 30,
2008:
Unrealized Gain (Loss)
Value of on
Investment Other Financial
Valuation Inputs Securities Instruments*
Level 1 -- Quoted Prices $109,483,077 --
Level 2 -- Other Significant
Observable Inputs 9,410,075 $(20,115)
Level 3 -- Significant Unobservable
Inputs -- --
------------ ---------
$118,893,152 $(20,115)
============ =========
* Includes forward foreign currency exchange contracts.
6. BANK LINE OF CREDIT
The fund, along with certain other funds managed by ACIM or ACGIM, has a
$500,000,000 unsecured bank line of credit agreement with Bank of America,
N.A. The fund may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement, which is subject to
annual renewal, bear interest at the Federal Funds rate plus 0.40%. The fund
did not borrow from the line during the six months ended June 30, 2008.
- ------
17
7. RISK FACTORS
The fund's investment process may result in high portfolio turnover, high
commission costs and high capital gains distributions. In addition, its
investment approach may involve higher volatility and risk. There are certain
risks involved in investing in foreign securities. These risks include those
resulting from future adverse political, social, and economic developments,
fluctuations in currency exchange rates, the possible imposition of exchange
controls, and other foreign laws or restrictions.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in
September 2006, which is effective for fiscal years beginning after November
15, 2007. FAS 157 defines fair value, establishes a framework for measuring
fair value and expands the required financial statement disclosures about fair
value measurements. The adoption of FAS 157 does not materially impact the
determination of fair value.
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133" (FAS 161). FAS 161 is effective for
fiscal years beginning after November 15, 2008. FAS 161 amends and expands
disclosures about derivative instruments and hedging activities. FAS 161
requires qualitative disclosures about the objectives and strategies of
derivative instruments, quantitative disclosures about the fair value amounts
of and gains and losses on derivative instruments, and disclosures of
credit-risk-related contingent features in hedging activities. Management is
currently evaluating the impact that adopting FAS 161 will have on the
financial statement disclosures.
- ------
18
FINANCIAL HIGHLIGHTS
VP Vista
Class I
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005 2004 2003
PER-SHARE DATA
Net Asset
Value,
Beginning of
Period $22.00 $15.74 $14.49 $13.40 $11.59 $8.15
-------- -------- -------- -------- -------- ------
Income From
Investment
Operations
Net
Investment
Income
(Loss) (0.05)(2) (0.09)(2) (0.05)(2) (0.05)(2) (0.01)(2) (0.05)
Net Realized
and
Unrealized
Gain (Loss) (1.82) 6.35 1.35 1.14 1.82 3.49
-------- -------- -------- -------- -------- ------
Total From
Investment
Operations (1.87) 6.26 1.30 1.09 1.81 3.44
-------- -------- -------- -------- -------- ------
Distributions
From Net
Realized
Gains (0.85) -- (0.05) -- -- --
-------- -------- -------- -------- -------- ------
Net Asset
Value, End of
Period $19.28 $22.00 $15.74 $14.49 $13.40 $11.59
======== ======== ======== ======== ======== ======
TOTAL RETURN(3) (8.03)% 39.77% 9.01% 8.13% 15.62% 42.21%
RATIOS/SUPPLEMENTAL DATA
Ratio of
Operating
Expenses to
Average Net
Assets 1.01%(4) 1.01% 1.00% 1.01% 1.00% 1.00%
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets (0.51)%(4) (0.51)% (0.31)% (0.40)% (0.05)% (0.58)%
Portfolio
Turnover Rate 93% 147% 215% 276% 252% 262%
Net Assets, End
of Period (in
thousands) $85,541 $104,126 $60,297 $16,863 $9,612 $2,206
(1) Six months ended June 30, 2008 (unaudited).
(2) Computed using average shares outstanding throughout the period.
(3) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(4) Annualized.
See Notes to Financial Statements.
- ------
19
VP Vista
Class II
For a Share Outstanding Throughout the Years Ended December 31 (except as noted)
2008(1) 2007 2006 2005(2)
PER-SHARE DATA
Net Asset Value, Beginning of Period $21.92 $15.71 $14.48 $12.56
------ ------ ------ ------
Income From Investment Operations
Net Investment Income (Loss)(3) (0.06) (0.15) (0.07) (0.05)
Net Realized and Unrealized
Gain (Loss) (1.82) 6.36 1.35 1.97
------ ------ ------ ------
Total From Investment
Operations (1.88) 6.21 1.28 1.92
------ ------ ------ ------
Distributions
From Net Realized Gains (0.85) -- (0.05) --
------ ------ ------ ------
Net Asset Value, End of Period $19.19 $21.92 $15.71 $14.48
====== ====== ====== ======
TOTAL RETURN(4) (8.10)% 39.53% 8.88% 15.29%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses to
Average Net Assets 1.16%(5) 1.16% 1.15% 1.16%(5)
Ratio of Net Investment Income
(Loss) to Average Net Assets (0.66)%(5) (0.66)% (0.46)% (0.55)%(5)
Portfolio Turnover Rate 93% 147% 215% 276%(6)
Net Assets, End of Period (in
thousands) $33,121 $38,499 $2,988 $1,250
(1) Six months ended June 30, 2008 (unaudited).
(2) April 29, 2005 (commencement of sale) through December 31, 2005.
(3) Computed using average shares outstanding throughout the period.
(4) Total return assumes reinvestment of net investment income and capital
gains distributions, if any. Total returns for periods less than one year are
not annualized. The total return of the classes may not precisely reflect the
class expense differences because of the impact of calculating the net asset
values to two decimal places. If net asset values were calculated to three
decimal places, the total return differences would more closely reflect the
class expense differences. The calculation of net asset values to two decimal
places is made in accordance with SEC guidelines and does not result in any
gain or loss of value between one class and another.
(5) Annualized.
(6) Portfolio turnover is calculated at the fund level. Percentage indicated
was calculated for the year ended December 31, 2005.
See Notes to Financial Statements.
- ------
20
APPROVAL OF MANAGEMENT AGREEMENT
VP Vista
Under Section 15(c) of the Investment Company Act, contracts for investment
advisory services are required to be reviewed, evaluated and approved by a
majority of a fund's independent directors or trustees (the "Directors") each
year. At American Century Investments, this process is referred to as the
"15(c) Process." As a part of this process, the board reviews fund
performance, shareholder services, audit and compliance information, and a
variety of other reports from the advisor concerning fund operations. In
addition to this annual review, the board of directors oversees and evaluates
on a continuous basis at its quarterly meetings the nature and quality of
significant services performed by the advisor, fund performance, audit and
compliance information, and a variety of other reports relating to fund
operations. The board, or committees of the board, also holds special meetings
as needed.
Under a Securities and Exchange Commission rule, each fund is required to
disclose in its annual or semiannual report, as appropriate, the material
factors and conclusions that formed the basis for the board's approval or
renewal of any advisory agreements within the fund's most recently completed
fiscal half-year period.
ANNUAL CONTRACT REVIEW PROCESS
As part of the annual 15(c) Process undertaken during the most recent fiscal
half-year period, the Directors reviewed extensive data and information
compiled by the advisor and certain independent providers of evaluative data
(the "15(c) Providers") concerning the VP Vista Fund (the "fund") and the
services provided to the fund under the management agreement. The information
considered and the discussions held at the meetings included, but were not
limited to:
* the nature, extent and quality of investment management, shareholder
services and other services provided to the fund;
* reports on the wide range of programs and services the advisor provides to
the fund and its shareholders on a routine and non-routine basis;
* information about the compliance policies, procedures, and regulatory
experience of the advisor;
* data comparing the cost of owning the fund to the cost of owning a similar
fund;
* data comparing the fund's performance to appropriate benchmarks and/or a
peer group of other mutual funds with similar investment objectives and
strategies;
* financial data showing the profitability of the fund to the advisor and the
overall profitability of the advisor; and
* data comparing services provided and charges to other investment management
clients of the advisor.
In keeping with its practice, the fund's board of directors held two in-person
meetings and one telephonic meeting to review and discuss the information
provided. The board also had the benefit of the advice of its independent
counsel throughout the period.
- ------
21
FACTORS CONSIDERED
The Directors considered all of the information provided by the advisor, the
15(c) Providers, and the board's independent counsel, and evaluated such
information for each fund for which the board has responsibility. In
connection with their review of the fund, the Directors did not identify any
single factor as being all-important or controlling, and each Director may
have attributed different levels of importance to different factors. In
deciding to renew the management agreement under the terms ultimately
determined by the board to be appropriate, the Directors' decision was based
on the following factors.
NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management
agreement, the advisor is responsible for providing or arranging for all
services necessary for the operation of the fund. The board noted that under
the management agreement, the advisor provides or arranges at its own expense
a wide variety of services including:
* fund construction and design
* portfolio security selection
* initial capitalization/funding
* securities trading
* custody of fund assets
* daily valuation of the fund's portfolio
* shareholder servicing and transfer agency, including shareholder
confirmations, recordkeeping and communications
* legal services
* regulatory and portfolio compliance
* financial reporting
* marketing and distribution
The Directors noted that many of the services provided by the advisor have
expanded over time both in terms of quantity and complexity in response to
shareholder demands, competition in the industry and the changing regulatory
environment. In performing their evaluation, the Directors considered
information received in connection with the annual review, as well as
information provided on an ongoing basis at their regularly scheduled board
and committee meetings.
INVESTMENT MANAGEMENT SERVICES. The nature of the investment management
services provided to the fund is quite complex and allows fund shareholders
access to professional money management, instant diversification of their
investments and liquidity. In evaluating investment performance, the board
expects the advisor to manage the fund in accordance with its investment
objectives and approved strategies. In providing these services, the advisor
utilizes teams of investment professionals (portfolio managers, analysts,
research assistants, and securities traders) who require extensive information
technology, research, training, compliance and other systems
- ------
22
to conduct their business. At each quarterly meeting the Directors review
investment performance information for the fund, together with comparative
information for appropriate benchmarks and peer groups of funds managed
similarly to the fund. The Directors also review detailed performance
information during the 15(c) Process comparing the fund's performance with
that of similar funds not managed by the advisor. If performance concerns are
identified, the Directors discuss with the advisor the reasons for such
results (e.g., market conditions, security selection) and any efforts being
undertaken to improve performance. The fund's performance for both the one-
and three-year periods was above the median for its peer group.
SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a
comprehensive package of transfer agency, shareholder, and other services. The
Directors review reports and evaluations of such services at their regular
quarterly meetings, including the annual meeting concerning contract review,
and reports to the board. These reports include, but are not limited to,
information regarding the operational efficiency and accuracy of the
shareholder and transfer agency services provided, staffing levels,
shareholder satisfaction (as measured by external as well as internal
sources), technology support, new products and services offered to fund
shareholders, securities trading activities, portfolio valuation services,
auditing services, and legal and operational compliance activities. Certain
aspects of shareholder and transfer agency service level efficiency and the
quality of securities trading activities are measured by independent third
party providers and are presented in comparison to other fund groups not
managed by the advisor.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The advisor provides detailed
information concerning its cost of providing various services to the fund, its
profitability in managing the fund, its overall profitability, and its
financial condition. The Directors have reviewed with the advisor the
methodology used to prepare this financial information. This financial
information regarding the advisor is considered in order to evaluate the
advisor's financial condition, its ability to continue to provide services
under the management agreement, and the reasonableness of the current
management fee. The board concluded that the advisor's profits were reasonable
in light of the services provided to the fund.
ETHICS. The Directors generally consider the advisor's commitment to providing
quality services to shareholders and to conducting its business ethically.
They noted that the advisor's practices generally meet or exceed industry best
practices.
ECONOMIES OF SCALE. The Directors review reports provided by the advisor on
economies of scale for the complex as a whole and the year-over-year changes
in revenue, costs, and profitability. The Directors concluded that economies
of scale are difficult to measure and predict with precision, especially on a
fund-by-fund basis. This analysis is also complicated by the additional
services and content provided by the advisor and its reinvestment in its
ability to provide and expand those services. Accordingly, the Directors also
seek to evaluate economies of scale by reviewing other information, such as
year-over-year profitability of the advisor generally, the profitability of
its management of the fund specifically, the expenses incurred by the advisor
in providing various functions to the fund, and the breakpoint fees of
competitive funds not managed by the advisor. The Directors believe the
advisor is appropriately sharing economies of scale through its competitive
fee structure, fee breakpoints as the fund increases in size, and through
reinvestment in its business to provide shareholders additional content and
services.
- ------
23
COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single,
all-inclusive (or unified) management fee for providing all services necessary
for the management and operation of the fund, other than brokerage expenses,
taxes, interest, extraordinary expenses, and the fees and expenses of the
fund's independent directors (including their independent legal counsel).
Under the unified fee structure, the advisor is responsible for providing all
investment advisory, custody, audit, administrative, compliance,
recordkeeping, marketing and shareholder services, or arranging and
supervising third parties to provide such services. By contrast, most other
funds are charged a variety of fees, including an investment advisory fee, a
transfer agency fee, an administrative fee, distribution charges and other
expenses. Other than their investment advisory fees and Rule 12b-1
distribution fees, all other components of the total fees charged by these
other funds may be increased without shareholder approval. The board believes
the unified fee structure is a benefit to fund shareholders because it clearly
discloses to shareholders the cost of owning fund shares, and, since the
unified fee cannot be increased without a vote of fund shareholders, it shifts
to the advisor the risk of increased costs of operating the fund and provides
a direct incentive to minimize administrative inefficiencies. Part of the
Directors' analysis of fee levels involves reviewing certain evaluative data
compiled by a 15(c) Provider comparing the fund's unified fee to the total
expense ratio of other funds in the fund's peer group. The unified fee charged
to shareholders of the fund was slightly above the median of the total expense
ratios of its peer group. The board concluded that the management fee paid by
the fund to the advisor was reasonable in light of the services provided to
the fund.
COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The
Directors also requested and received information from the advisor concerning
the nature of the services, fees, and profitability of its advisory services
to advisory clients other than the fund. They observed that these varying
types of client accounts require different services and involve different
regulatory and entrepreneurial risks than the management of the fund. The
Directors analyzed this information and concluded that the fees charged and
services provided to the fund were reasonable by comparison.
COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information
from the advisor concerning collateral benefits it receives as a result of its
relationship with the fund. They concluded that the advisor's primary business
is managing mutual funds and it generally does not use the fund or shareholder
information to generate profits in other lines of business, and therefore does
not derive any significant collateral benefits from them. The Directors noted
that the advisor receives proprietary research from broker-dealers that
execute fund portfolio transactions and concluded that this research is likely
to benefit fund shareholders. The Directors also determined that the advisor
is able to provide investment management services to certain clients other
than the fund, at least in part, due to its existing infrastructure built to
serve the fund complex. The Directors concluded, however, that the assets of
those other clients are not material to the analysis and, in any event, are
included with the assets of the fund to determine breakpoints in the fund's
fee schedule, provided they are managed using the same investment team and
strategy.
- ------
24
CONCLUSIONS OF THE DIRECTORS
As a result of this process, the board, including all of the independent
directors, in the absence of particular circumstances and assisted by the
advice of legal counsel that is independent of the advisor, taking into
account all of the factors discussed above and the information provided by the
advisor concluded that the investment management agreement between the fund
and the advisor is fair and reasonable in light of the services provided and
should be renewed.
- ------
25
ADDITIONAL INFORMATION
PROXY VOTING GUIDELINES
American Century Investment Management, Inc., the fund's investment advisor,
is responsible for exercising the voting rights associated with the securities
purchased and/or held by the fund. A description of the policies and
procedures the advisor uses in fulfilling this responsibility is available
without charge, upon request, by calling 1-800-378-9878. It is also available
on American Century Investments' website at americancentury.com and on the
Securities and Exchange Commission's website at sec.gov. Information regarding
how the investment advisor voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available on the
"About Us" page at americancentury.com. It is also available at sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The fund's Form N-Q is available on the SEC's website at
sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330. The fund also makes its complete
schedule of portfolio holdings for the most recent quarter of its fiscal year
available on its website at ipro.americancentury.com (for Investment
Professionals) and, upon request, by calling 1-800-378-9878.
- ------
26
INDEX DEFINITIONS
The following indices are used to illustrate investment market, sector, or
style performance or to serve as fund performance comparisons. They are not
investment products available for purchase.
The RUSSELL 1000® INDEX is a market-capitalization weighted, large-cap index
created by Frank Russell Company to measure the performance of the 1,000
largest publicly traded U.S. companies, based on total market capitalization.
The RUSSELL 1000® GROWTH INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with higher price-to-book ratios and higher
forecasted growth values.
The RUSSELL 1000® VALUE INDEX measures the performance of those Russell 1000
Index companies (the 1,000 largest publicly traded U.S. companies, based on
total market capitalization) with lower price-to-book ratios and lower
forecasted growth values.
The RUSSELL 2000® INDEX is a market-capitalization weighted index created by
Frank Russell Company to measure the performance of the 2,000 smallest of the
3,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL 2000® GROWTH INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with higher price-to-book
ratios and higher forecasted growth values.
The RUSSELL 2000® VALUE INDEX measures the performance of those Russell 2000
Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S.
companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
The RUSSELL MIDCAP® INDEX measures the performance of the 800 smallest of the
1,000 largest publicly traded U.S. companies, based on total market
capitalization.
The RUSSELL MIDCAP® GROWTH INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with higher
price-to-book ratios and higher forecasted growth values.
The RUSSELL MIDCAP® VALUE INDEX measures the performance of those Russell
Midcap Index companies (the 800 smallest of the 1,000 largest publicly traded
U.S. companies, based on total market capitalization) with lower price-to-book
ratios and lower forecasted growth values.
- ------
27
NOTES
- ------
28
[back cover]
[american century investments logo and text logo ®]
CONTACT US
AMERICANCENTURY.COM
AUTOMATED INFORMATION LINE . . . . . . . . . . . . . . . . 1-800-345-8765
INVESTMENT PROFESSIONAL SERVICE REPRESENTATIVES. . . . . . 1-800-345-6488
TELECOMMUNICATIONS DEVICE FOR THE DEAF . . . . . . . . . . 1-800-634-4113
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
INVESTMENT ADVISOR:
American Century Investment Management, Inc.
Kansas City, Missouri
This report and the statements it contains are submitted for the general
information of our shareholders. The report is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
American Century Investment Services, Inc., Distributor
©2008 American Century Proprietary Holdings, Inc. All rights reserved.
0808
CL-SAN-61147
ITEM 2. CODE OF ETHICS.
Not applicable for semiannual report filings.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semiannual report filings.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semiannual report filings.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) The schedule of investments is included as part of the report to
stockholders filed under Item 1 of this Form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the reporting period, there were no material changes to the procedures by
which shareholders may recommend nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable for semiannual report filings.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are filed and attached hereto as Exhibit
99.302CERT.
(a)(3) Not applicable.
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, is furnished and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
By: /s/ Jonathan S. Thomas
--------------------------------------------------
Name: Jonathan S. Thomas
Title: President
Date: August 15, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Jonathan S. Thomas
---------------------------------------------------
Name: Jonathan S. Thomas
Title: President
(principal executive officer)
Date: August 15, 2008
By: /s/ Robert J. Leach
---------------------------------------------------
Name: Robert J. Leach
Title: Vice President, Treasurer, and
Chief Financial Officer
(principal financial officer)
Date: August 15, 2008
